Box 14-1 on page 288 of FGS describes how game theory helps explain the â€œmedical arms raceâ€ among hospitals up to about 20 years ago.
(1) Explain what a â€œdominant strategyâ€ is in game theory.
(2) Using Box 14-1, replace the entry in the first row, second column with (125, -50). Does A have a dominant strategy? Does B? What is the solution to this game?
(3) Why is the medical arms race less a problem today than it once was?
(Tip: In order to determine what strategy a â€œplayerâ€ should adopt, the player asks, â€œIf B adopts, then what should I do? If B does NOT adopt, then what should I do?â€ Both players in the game approach the selection of their strategy in this way.)
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