Hi all,

Just a few days before the exam and I do not understand what is the better choice in a Nash equilibrium question.

If I put the prisoner dilemma as a example in a CFA exam, what will be the correct answer?

Obviously the best outcome for both is do not blame the other and spend few years in prison each, but the theory says that they will not cooperate and they will try to find the best outcome individually…

And then, if two companies at the same time cooperate and put high prices, the total outcome is much greater than if they put low price both (war price). But if they think in a selfish way, one could think, well I put the prices low and my outcome will be bigger than with both high. ( in that case the total outcome is lower than in a cartel situation).

I understand the theory what I do not understand is the correct answer for a question like “Two companies are into a collusive agreement, According to the Nash equilibrium, a low price is *most likely* charged by: both, one or neither”

Many thanks in advance.