What could be done to promote the socially desirable outcome

Reference no: EM13212224

Michael Shermer developed the following model about blood-doping in professional cycling. He used a simple prisoner's dilemma with the following assumptions:

Value of winning the Tour de France: $10 million ?

Likelihood of doping cyclists winning against non-doping competitors: 100% ?

Value of cycling with a level playing field $1 million ? Likelihood of getting caught doping: 10% ?

Cost of getting cut from a team: $1 million ?

Likelihood a non-doping rider will get cut from a team for under-performance: 50% Staying clean while everyone else is clean (High Payoff) Expected value- Value of competing for one year: $1 million Expected penalties- None $0 million Staying clean while everyone else cheats (Sucker Payoff) Expected value- Only win if cheaters are caught ($1 million*10%): $0.1 million Expected penalties- Getting cut from team ($1 million*50%): $0.5 million Cheating while everyone else is clean (High Payoff) Expected value- Winning and not getting caught ($10 million*90%):$9 million Expected penalties- Getting caught and cut ($1 million*10%): $0.1 million Staying clean while everyone else cheats (Sucker Payoff) Expected value- Expected value of competition ($1 million*90%): $0.9 million Expected penalties- Getting caught and cut ($1 million*10%): $0.1 million

a. From the above, build a 2 x 2 table which shows the payoffs for an individual cyclist and the rest of the competitors

b. What is the Nash equilibrium of the model?

c. What could be done to promote the socially desirable outcome (no cheating)?

Reference no: EM13212224

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