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AndrewKraus AndrewKraus
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7 years ago
Two individuals are playing a trust game that has three rounds. In the first two rounds of the game, they have accumulated $1,000 as a team. In the third round, Player 1 is blindfolded and asked to decide whether he would let Player 2 guide him to a particular destination or opt out of the game. If he lets Player 2 guide him, Player 2 can either guide him to the correct destination or take him elsewhere. If he leads him to the correct destination, each of them will get half the accumulated money. On the other hand, if Player 2 can lead him astray, Player 2 will get 75% of the accumulated money and Player 1 will get 25%. If Player 1 opts out of the game, he will get 30% of the accumulated money and Player 2 will get 20%.
a)   What is the equilibrium outcome in this case?
b)   How will the equilibrium change if the players can impose a guilt penalty of 60% of the accumulated money on the defecting player?
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Microeconomics

Microeconomics


Edition: 1st
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losteinlostein
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AndrewKraus Author
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#2
6 years ago
This helps with my assignment big time
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