Lee and Cody are competitors.Each is considering whether to take aggressive action against the other or to cooperate.Cody can observe Lee's decision.Their decision tree can be diagrammed as follows:
Refer to the figure above.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 responded to Lee's cooperative choice with aggression.For that fine to be effective,it must be
A) less than 15.
B) greater than 15.
C) equal to 40.
D) equal to 25.

Question

Lee and Cody are competitors.Each is considering whether to take aggressive action against the other or to cooperate.Cody can observe Lee's decision.Their decision tree can be diagrammed as follows: 
Refer to the figure above.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 responded to Lee's cooperative choice with aggression.For that fine to be effective,it must be
A) less than 15. 
B) greater than 15. 
C) equal to 40. 
D) equal to 25.

Quizplus · Accepted Answer

Cody would earn 40 by responding aggressively to Lee's cooperation and would earn 25 by responding cooperatively.A fine greater than 15 changes the incentives and makes cooperation Cody's higher-payoff response to Lee's cooperation.

Lee and Cody Are Competitors