1. A certain Mr. B. Madoff pitches you a investment scheme he calls, "P.otentially O.pportune N.evertheless Z.ero I.nsolvency" where agents invest in sequence, such that if an agent (#z) invests $10, he gets back his investment +$5 profit only if the next agent (# z+1) invests $10.
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3. (1) Using backwards reasoning, it would be safe to say that no one should invest? Because there is the risk of being the last agent (say Player Z) and therefore not receiving any payoff. The player before that agent (say Player Y) would think that if Player Z doesn't invest (which is likely if he/she is the last), then Player Y shouldn't invest as well. And the players in the earlier chain should also not invest given the reasoning of Players Y & Z.
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5. (2) Is the normal form representation below accurate?

Transcribed Image Text:

Invest Others NOT Invest A G Invest 5,5 -10,0 ENT NOT Invest 0,-10 0,0 1 Invest Others NOT Invest A G Invest 5,5 -10,0 ENT NOT Invest 0,-10 0,0 1

Answer rating: 100% (QA)

1 You are correct Using backwards induction no rational agent would voluntarily participate in this ... View the full answer