A traveler dines at a restaurant along an interstate highway. Both he and the waiter who serves him are rational and self-interested in the narrow sense. The waiter must first choose between providing good service or bad service, where-upon the diner must choose between leaving the customary tip or leaving no tip at all. The payoffs for their interaction are as summarized on the accompanying game tree. What is the most the diner would be willing to pay for the right to make a binding commitment (visible to the waiter) to leave the customary tip at the end of the meal in the event of having received goodservice?

  • CreatedDecember 12, 2014
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