Scenario: Elly owns a small coffee shop. She has only one employee. One weekend, she decides to take a break from work. She is wondering whether she should trust her employee to run the shop in her absence. If she does not trust him, she would have to keep the shop closed, in which case neither she nor her employee will be able to make money. In contrast, if she trusts him, he can either cooperate and run the shop or he can defect and steal from the shop. If he cooperates, both of them will earn money. If he steals from the shop, he will make more money while she will lose.
-Refer to the scenario above.Elly should use ________ to make her decision.

Question

Quizplus · Accepted Answer

Backward induction should be used to make the decision. Elly should first consider the possible outcomes of the employee's actions. If the employee cooperates, both of them earn money, and if the employee steals, only the employee earns money while Elly loses. Knowing this, Elly should communicate her expectations to the employee and set up a system of checks and balances to ensure that theft is deterred. If the employee is reliable and trustworthy, she should trust him to run the shop in her absence. If not, then she should keep the shop closed. By using backward induction to reason backwards from the possible outcomes, she can make the best decision given the circumstances.

Scenario: Elly Owns a Small Coffee Shop