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2. The trust game is two player sequential-move game. Player 1, the Trustor, has an endowment (E), which he can invest in a project by
2. The trust game is two player sequential-move game. Player 1, the Trustor, has an endowment (E), which he can invest in a project by the Player 2, the Trustee. If the Endowment is invested, the Trustee generates a profit of 3E, which he is free to share (give back 1.5E to the Trustor) or not share (give back 0 to the Trustor) with the Trustor. a. Represent this sequential game in its extensive form (game tree). Using rollback (backward induction), state what is the equilibrium which will be achieved in this game. b. Perform brief review of the academic literature of Trust games on google scholar. Describe behavior of individuals in this game with respect to the predictions you outlined in part (a). In your own words, why do you think behavior deviates from the rollback equilibrium in these games? [Spend no more than a page on answering this question]
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