Lee and Cody are playing a game in which Lee has the first move at A in the decision tree shown below. Once Lee has chosen either aggression or cooperation, Cody, who can see what Lee has chosen, must choose either aggression or cooperation at B or C. Both players know the payoffs at the end of each branch. Suppose Lee and Cody enter into a binding non-aggression agreement. As part of that agreement, they negotiate a fine that Cody would have to pay to Lee if Cody chooses aggression after Lee chooses cooperation. For the fine to be effective, it would have to be:
A)less than 15.
B)at least 15.
C)equal to 40.
D)equal to 25.

Question

Lee and Cody are playing a game in which Lee has the first move at A in the decision tree shown below. Once Lee has chosen either aggression or cooperation, Cody, who can see what Lee has chosen, must choose either aggression or cooperation at B or C. Both players know the payoffs at the end of each branch.  Suppose Lee and Cody enter into a binding non-aggression agreement. As part of that agreement, they negotiate a fine that Cody would have to pay to Lee if Cody chooses aggression after Lee chooses cooperation. For the fine to be effective, it would have to be:
A)less than 15. 
B)at least 15. 
C)equal to 40. 
D)equal to 25.

Quizplus · Accepted Answer

If the fine is less than 15, Cody would still have an incentive to choose aggression, as the potential payoff is higher than the fine. If the fine is equal to 40, Cody would never choose aggression, even if Lee chooses aggression, as the potential payoff is only 15. This would result in a suboptimal outcome for Lee. Therefore, the fine should be at least 15, as this would give Cody a disincentive to choose aggression after Lee chooses cooperation, while still allowing a potential payoff greater than the fine if both players choose cooperation.

Lee and Cody Are Playing a Game in Which Lee