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3. Two individuals are involved in a synergistic relationship. If both individuals devote more effort to the relationship, they are both better off. Specifically, an
3. Two individuals are involved in a synergistic relationship. If both individuals devote more effort to the relationship, they are both better off. Specifically, an effort level is a nonnegative number, and player 1's payoff function is e;(1+e2ey), where e; is player 's effort level. For player 2 the cost of effort is either the same as that of player 1, and hence her payoff function is given by es(1+ e e3), or effort is very costly for her in which case her payoff function is given by ey (14 e; 2e,). Player 2 knows player 1's payoff function and whether the cost of effort is high for herself or not. Player 1, however, is uncertain about player 2's cost of effort. He believes that the cost of effort is low with probability p, and high with probability 1 p, where 0
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