Monkey business.
Big Monkey (BM) and Little Monkey(LM) are both searching for food. After searching frantically, they finally stumble upon a banana tree. To their dismay, there is only ONE banana left on the tree. Herein lies the problem. To get to the fruit, one of them must climb the tree, and shake vigorously until the fruit is dislodged and falls to the ground below. For all its worth, each banana provides 10 kilocalories (Kc) of energy, but the penalty for running up and shaking the fruit loose costs 2 Kc. for BM and 0 Kc for LM. Moreover, if both of them climb the tree, shake the fruit loose, then climbs down and eat the fruit, BM gets 7Kc and LM gets 3Kc. ; if only BM climbs the tree, while LM waits below for the fruit to fall, BM gets 6Kc and LM gets 4 Kc.; if only LM climbs the tree, BM gets 9kc and LM gets 1 Kc. as most of the banana is gone by the time LM gets down to retrieve his share. What will BM and LM do if each wants to maximize their energy gain? Which of these ( A-D) is the best response, or Nash Equilibrium?
Assumptions: 1).Big Monkey makes the first move 2). Monkeys are always energy maximizers. 3). Monkeys are aware of costs-benefits of their actions. 4). Monkeys are smart
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If Big Monkey makes the first move, and decides to stay still, then LM faces a choice of either getting no energy or getting 1kcal. At this point, the choice is obvious for LM, he will go and climb the tree to get his 1kcal.
BM will not change his strategy, because he wants the maximum energy he can get in all the cases, and he also knows that LM will prefer 1kcal over 0kcal, and LM will not change his strategy, because he wants the 1kcal over 0kcal.
Hence, they are in Nash equilibrium.