The Players: The Rules: No hard question, no easy questions, polite applause at the endThe Consequences: No Indian Night for you!The Payoffs: Indian Night for you!

Background

Year 2000, Firestone supplies tyres to Ford for Explorer SUV

There were several fatal blowouts on Explorers, all using Firestone tyres.

However there were no blowouts on other vehicles using the same tyres.

Initially, the companies collaborated on finiding a fix.

Unexpectedly, a blame game arose between Ford and Firestone.

As things got worse, they fell prey to the Prisoners Dilemma and both companies suffered.

The Game

1 NASH Equilibrium• [-100,-100] [Bridgestone talks , Ford talks]

1. Both companies are better of collaborating and receiving lesser penalties [-30,-30]2. However if they appear to collaborate with each other, each company will be find favor in switching strategy as there is a better payoff possible.3. This will result in a Nash Equilibrium forming at [-100,-100] and staying there.

The SolutionsCollaborate/ColludeIncentivize

Background

Before 1930’s women could sue for ‘breach of promise’

Later Courts changed their minds! But the men could not be trusted!

Couples didn’t want to wait to till marriage to sleep together. The Solution? An Expensive Engagement Ring

The trend seemed to be widely accepted! The ring was “Reassurance”

In case of breakup? Ring acted as financial compensation.

Women found it hard to remarry and also the social stigma.No real consolation!

Assumptions

Man and woman have slept together at least once after proposal acceptance

Ring is very expensive and can not be returned under any circumstances

Broken engagement has more severe consequences on women than men

Man has already proposed to the woman. Her decision is awaited.

Man

Woman

= Cal

= Kate

Engagement ring = Heart of the ocean

The Game

Proposal

Reject

(-250 , 0)

Accept

Stay with

Kate

Run awaywith ?? ?

(1000 , 1000)

(-200, -1100)

PAYOFFS

1 Heart of the ocean 500

2 Sleep Together 100

3 Next Marriage 200

4 Happy Marriage 900

5 Shattered Ego -250

6 Social Stigma -1500

Kate: No effectCal: 5 (-250 , 0)

(1000 , 1000)

(-200, -1100)

Cal: 2 + 4 Kate: 2 + 4

Cal: 2 + 3 - 1 Kate: 1 + 2 - 3 + 6

The Game (contd…)

Cal

Stay Break

Kate Accept 1000,1000 -4600,-200

Reject 000,-250 000,-250

2 NASH Equilibriums• [1000,1000] [Kate stay , Cal stay]

1. If Kate chooses to Accept, then Cal has better incentive to Stay2. If Kate Rejects, then both players receive a lesser payoff than if she Accepts.o The 2nd Nash Equilibrium is less likely because if Kate rejects, then Cal does not have the

option to break the engagement.

BACKWARD Induction

(1000 , 1000) (-200 , -1100)

(-250 , 0)

v/s

v/s (-250 , 0)v/s

(1000 , 1000)

(-250 , 0)

(1000 , 1000)

The Game Changers

PAYOFFSHeart of the ocean 500

Sleep Together 100Next Marriage 200

Happy Marriage 900Unhappy Marriage 450

Shattered Ego 250Social Stigma -1500

Madam Aubert 600Molly Brown 300

Proposal

Reject

(-250 , 0)

Accept

BreakKate’strust

Stay withKate

StaywithCal

Run awaywith Jack

(550 , 550)

(-450 , 0)

Run

away

with

Mol

ly B

row

n

(100 , -1100) (400 , -1100)

Run away

with

Madam

Aubert

The Game Changers (contd…)

Cal

Stay Break (MA) Break (MB)

Kate Stay 550,550 -1100,400 -1100,100

Break 0,-450 -1100,400 -1100,100

2 NASH Equilibriums• [550,550] [Kate stay , Cal stay]

1. If Kate Stays, then Cal will stay2. Whatever Cal chooses, Kate will want to stayo The 2nd Nash Equilibrium is less likely because if either player choose to break the

engagement, then the other player doesn’t have the option to break the engagement again.

BACKWARD Induction

(550 , 550) (-450 , 0)

(100 , -1100)(400 , -1100)

v/s

v/s

(550 , 550)

v/s

(-250 , 0)

(550 , 550)