Scenario: You walk onto a used car lot to buy a car. You are willing to pay up to $15,000 for a car of good quality, but you value a lemon at $0. You are now wondering whether you should trust the car dealer when it comes to the quality of his cars. If you choose to trust him, he can choose to cooperate or defect. If you do not trust him, he will not earn any money and you will not be able to buy a car. If you trust him and he cooperates, both of you will gain, because the dealer values a good-quality car at $13,000. However, if he defects, he will earn $15,000, while you will not derive any satisfaction.
-Refer to the scenario above.Which of the following will happen in equilibrium?
A) You will trust him, and he will defect.
B) You will trust him, and he will cooperate.
C) You will not trust him.
D) You will not make any purchase.
Correct Answer:
Verified
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