QUESTION 10 [9 Marks] The remuneration committee of the local town municipal council must make a decision on the important issue of the annual remuneration adjustments for municipal council committee members. The three committee members, A, B and C, can each vote for either a Modest increase in their own salaries or for a Lavish increase. If there are two or more votes for either option, the council will adopt the recommendation. The committee members naturally want larger salaries, but they also prefer the voting record not to show them to be greedy. The payoffs for each committee member are: Vote Modest and receive a modest increase: 2 Vote Modest and receive a lavish increase: 4 Vote Lavish and receive a modest increase: 1 Vote Lavish and receive a lavish increase: 3 The chairperson, A, announces that he will vote rst, followed by B and then by C. This is a sequential-move game of perfect information. 10.1 Explain what "common knowledge of rationality" means. [2] 10.2 Draw an extensive-form representation of this sequential-move game, solve it using backwards induction and write down the solution strategies for each player. [7]