Consider a situation in which there is an employer, E , and a worker, W . E
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Question:
Consider a situation in which there is an employer, E and a worker, W E can choose to trust the worker to a high or low level while W can choose either a high or low level of effort. Both are rational and have complete information about the payoffs in this oneshot game:
If E chooses high trust, and W chooses high effort, they receive a payoff of each.
If E chooses high trust, and W chooses low effort, E receives a payoff of and W receives a payoff of
If E chooses low trust, and W chooses high effort, E receives a payoff of and W receives a payoff of
If E chooses low trust, and W chooses low effort, E receives a payoff of and W receives a payoff of
Draw a payoff matrix to show this information as a simultaneous oneshot game in which both E and W choose their own action before knowing what the other will do Player Es actions should be given on rows. marks
Explain whether either E or W or both, have a dominant strategy. Show your reasoning in full. marks
Identify and explain the Nash equilibrium in this game. Explain whether it is also a Pareto optimal outcome. marks
Explain in full why, if E and W play the game repeatedly, outcomes may depend on whether repetitions are known by them to be finite. marks
Related Book For
Organizational Behavior
ISBN: 978-0077862589
7th edition
Authors: Steven McShane, Mary Ann Von Glinow
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