Two Players Are Engaged in a Game of Chicken

question 8

Multiple Choice

Two players are engaged in a game of Chicken.There are two possible strategies, Swerve and Drive Straight.A player who chooses to Swerve is called Chicken and gets a payoff of zero, regardless of what the other player does.A player who chooses to Drive Straight gets a payoff of 432 if the other player swerves and a payoff of -48 if the other player also chooses to Drive Straight.This game has two pure strategy equilibria and

• A)a mixed strategy equilibrium in which each player swerves with probability .10 and drives straight with probability .90.
• B)a mixed strategy in which each player swerves with probability .05 and drives straight with probability .95.
• C)a mixed strategy equilibrium in which one player swerves with probability .10 and the other swerves with probability .90.
• D)two mixed strategies in which players alternate between swerving and driving straight.
• E)no mixed strategies.

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Definitions:

Flotation Costs

Expenses incurred by a company when it issues new securities, including underwriting fees and legal expenses.

Cash Dividends

Profits given to stockholders by a corporation, typically as a way to distribute earnings.

New Shares

Additional stock issued by a company, potentially diluting the ownership percentage of existing shareholders.

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Earnings obtained by holding company shares, typically dispensed from the firm's earnings.