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Fred and Wilma are getting divorced. They have a $100,000 estate to divide between them. Hiring...

  1. Fred and Wilma are getting divorced. They have a $100,000 estate to divide between them. Hiring a lawyer costs $10,000. If they settle (50/50) without the lawyers, each gets $50,000 (the lower right cell).

    Fred (on left side of graph)


    Wilma (on top side of graph)



Lawyer

No Lawyer

Lawyer

40,000

                     40,000

60,000

                          30,000

No Lawyer

30,000

                     60,000

50,000

                          50,000


If they both hire lawyers, they achieve the same 50/50 split but each must pay the lawyers fee. If only one person hires a lawyer then that person does better than the 50/50 split because of better legal advice; that person has to pay their lawyer’s fees. The matrix above represents the possible settlement outcomes.

  1. What is meant by a dominant strategy?
  2. Do Fred and Wilma each have a dominate strategy? Explain.
  3. What is the outcome (the Nash Equilibrium) of this divorce settlement game? i.e. what do Fred and Wilma choose to do and what do they each gain?
business   economics   
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Answer #1

Wilma lawyer Fred Lawyes adoo; 20000 - No Lawyes 30000, 60000 ! 5 LOA / 60000; 30000 50000, 50000 a) Dominant strategy is a s

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