Two Individuals Are Playing a Trust Game That Has Three

question 52

Essay

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 she leads him to the correct destination,each of them will get half of the accumulated money.However,if Player 2 leads him astray,Player 2 will get 75 percent of the accumulated money and Player 1 will get 25 percent.If Player 1 opts out of the game,he will get 30 percent of the accumulated money and Player 2 will get 20 percent.
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 percent of the accumulated money on the defecting player?

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Definitions:

Paxil

A medication prescribed primarily to treat depression, anxiety disorders, and other mental health conditions, known generically as paroxetine.

Zoloft

A medication commonly prescribed to treat depression, anxiety, and other mental health conditions; it belongs to the SSRI class.

Deinstitutionalisation

The policy of moving individuals with mental health conditions out of state-run institutions and then closing these facilities as part of the mental health treatment reform.

Antianxiety Drugs

Medications that are used to treat and reduce symptoms of anxiety.