Question: Consider the following sequential game between two players, A and B. First, A chooses between "trust B" or "do not trust B." If A decides not to trust B the game ends and each player obtains a payoff of 0. If A decides to trust B, then B chooses between "abuse A's trust" or "treat A fairly." If B abuses A’s trust, then A's payoff is -1 and B's payoff is 2. If B treats A fairly, then each player obtains a payoff of 1.

1. Draw the tree of the game and use backward induction to find a prediction.
2. What would be your prediction if this game is played twice? What if it is played an indefinite number of times? Explain.
3. What would be your prediction if B played the game an indefinite number of times, but against a different player A in each period?
4. Provide a real-world business application for this game. Be brief (no more than five lines).

Price: $2.99

Solution: The downloadable solution consists of 3 pages
Deliverable: Word Document