Suppose Bob agrees to sell his car to Mary for $5,000. They draw up a contract stating that Mary will pay Bob the money on May 1 and that Bob will give the car to Mary on May 2. In the absence of a court of law, Bob might be tempted to "defect" from the agreement by taking Mary's money and then denying her possession of the car. A court, however, enables Mary to sue Bob if he does not honor his obligations under the contract. The relationship between Bob and Mary is a type of ________.

Question

Quizplus · Accepted Answer

The situation described is a type of prisoner's dilemma, where both parties have an incentive to defect, but cooperation leads to the best outcome. In this case, Bob could defect by taking the money and not giving Mary the car, but both parties would be better off if both cooperate and honor the terms of the contract.

Suppose Bob Agrees to Sell His Car to Mary for $5,000