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Question 1 Consider the following investment game: Sender has $12 to invest. If he does not send it, his payoff is $12 and the receiver's
Question 1 Consider the following investment game: Sender has $12 to invest. If he does not send it, his payoff is $12 and the receiver's payoff is $0. If he sends the money to the receiver, the amount is tripled to $36, and the receiver can either keep the $36 to himself, giving the sender $0, or give 3/4 of the $36 to the sender. In this case the payoff of the receiver is $9 and that of the sender is $27. (a) What is the rollback equilibrium in the one-shot version of this game? (b) Now consider the case where the game described above repeated infinitely many rounds. Under what condition on the discount factor, 8=1/(1+r), can "trust" (i.e. the sender sends and the receiver returns in every round) be sustained as an equilibrium using a grim trigger strategy
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