Game Theory, Health Economics

timer Asked: Apr 17th, 2017

Question description

Box 14-1 on page 288 of FGS describes how game theory helps explain the "medical arms race” among hospitals up to about 20 years ago.

(1) Explain what a "dominant strategy” is in game theory.

(2) Using Box 14-1, replace the "Adopt, Adopt" entry (first row, first column) with 300, 300. Replace the "Do Not Adopt, Do Not Adopt" entry (second row, second column) with 50, 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 "player” should adopt, the player asks, "If B adopts, then what should I do? If B does NOT adopt, then what should I do?” Both players in the game approach the selection of their strategy in this way.)

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