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1. Consider the following simplified trust game: Players 1 and 2 are both endowed with $10. Player 1 can either send Player 2 x equal

1. Consider the following simplified trust game:

  1. Players 1 and 2 are both endowed with $10.
  2. Player 1 can either send Player 2 x equal to $10 or $0.
  3. Player 2 receivesx3
  4. x3. That is, Player 2 receives $30 or $0.
  5. Player 2 then can send back y equal to $20 or $0 to Player 1.

(Hint: Consider drawing the extensive form graph of this game and solve for the SPNE first.)

With what probability would Player 2 have to choose y = $20 (if given the chance) in order for a fully selfish Player 1 to choose x = 10?

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