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Stag Hunt
The global warming potentially has disastrous consequences. Two nations are thinking about reducing their CO2-emissions. However, reducing the emissions is costly. If both cut on their CO2-emissions, both profit from a better environment at some economic cost. If only one of them reduces emissions, both nations profit, but only the reducing nation pays the cost. If both keep polluting, both suffer from worse environmental conditions in the long run. The payoff matrix shows their payoffs (the first number in the bracket is the payoff of player 1).
The Payoff Matrix
Player 1 \ Player 2 | reduce CO2 emissions | keep polluting |
---|---|---|
reduce CO2 emissions | ( 6, 6 ) | ( 1, 5 ) |
keep polluting | ( 5, 1 ) | ( 4, 4 ) |
Solution
This game is called “Stag Hunt”. It has two Nash-Equilibria: Either both keep polluting, or both reduce emissions. Unlike the “Prisoner’s Dilemma”, this game also has a Nash-Equilibrium that is socially optimal (both reduce CO2-emissions). You’ll find a lot more information about this game online: https://en.wikipedia.org/wiki/Stag_hunt