Tyler goes to middle school every day, where there is a bully. Ever day, Tyler brings in a $5 bill to buy lunch, and the bully threatens to hurt Tyler if he doesn't had if over. Tyler is deciding whether to hand it over or not, and if he doesn't, the bully will decide whether to walk away or hurt Tyler and take the money anyway (which risks getting the bully in trouble). Tyler thinks through the game tree and realizes that it's not in the bully's interest to hurt Tyler, since the chance of getting in trouble for doing so is just high enough to outweigh the $5 he'd get for it. The bully's best response is to walk away. So, Tyler decides not to hand over the money. What is the error in Tyler's thinking here from a game theory perspective?

Answer rating: 100% (QA)

The error in Tylers thinking from a game theory perspective is that he assumes the bully will a... View the full answer