Game Theory and the Medical Arms Race

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 (**PLEASE READ THE PICTURE OF THIS BOX THAT IS PROVIDED IN AN UPLOADED FILE WITHIN THIS QUESTION TO HELP ANSWER THE QUESTIONS!!) 

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

(2) Using Box 14-1, replace both the entry in the first row, second column, and the entry in the second row, first column with (125, -50). As a result, 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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