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 is true if the car dealer has a reputation for trustworthiness?

Question

Quizplus · Accepted Answer

If the car dealer has a reputation for trustworthiness, it is likely that he will cooperate and offer you a good-quality car for $13,000, as he values it at that price. Therefore, the best choice for you would be to trust the dealer and pay him $13,000 for a good-quality car. This outcome is efficient as both parties gain from the exchange, and it is also equitable as the dealer does not take advantage of your trust.

Scenario: You Walk onto a Used Car Lot to Buy