Reference no: EM131288740

Economics Problem: Republicans and Democrats trying to make an agreement over raising the debt ceiling of the country can be looked at like a game of chicken. Let's think about it as a game between Mr. Red and Mr. Blue. In a game of chicken, two players in their cars start at opposite ends of a road and drive in a straight line towards each other. The first to swerve loses the game (because they were too chicken to keep driving straight). In this case, the winner receives 100 utility for winning, and the loser receives -100 utility for losing. If neither swerves, they both crash into each other. This obviously is a bad outcome for both players, and so each player receives -500 utility if they crash. Finally, if they both swerve, they are both chickens and neither player wins. In this case, the payo? is 0 for both players.

a. Set up a normal form (simultaneous) game for Mr. Red and Mr. Blue, making sure you label what their strategies and payo?s are.

b. Solve for the Nash Equilibrium/Equilibria of the game. Please show work