Consider an Example of the Prisoner's Dilemma Where 2 Firms

question 111

Multiple Choice

Consider an example of the prisoner's dilemma where 2 firms are making sealed bids on a highway-construction contract and each firm is allowed to bid either $100 million or $120 million.If both firms bid the same price,the job is shared equally and each firm earns half the value of its bid.Otherwise the lowest bidder wins the contract and receives the full value of its bid (and the other bidder earns zero) .The cooperative outcome in this situation is

• A)both firms bid $50 million.
• B)both firms bid $60 million.
• C)one firm bids $100 million,the other firm bids $120 million.
• D)both firms bid $100 million.
• E)both firms bid $120 million.

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Definitions:

Cognitive Shortcuts

Heuristic methods or simple strategies used by the human mind to make decisions or solve problems quickly.

Heuristics

Mental shortcuts or rules of thumb that facilitate fast and efficient decision-making, although not always leading to the perfect solution.

Elimination By Aspects

A decision-making approach in which alternatives are evaluated against criteria that have been ranked according to importance.

Additive Strategy

A problem-solving technique that involves systematically adding all possible elements together to find a solution.