In 2007, Italy announced that an Italian journalist who had been held hostage for 15 days by the Taliban in Afghanistan had been ransomed for five Taliban prisoners. Governments in many nations denounced the act as a bad idea because it rewarded terrorism and encouraged more abductions. Use an extensive-form game tree to analyze the basic arguments. Can you draw any hard and fast conclusions about whether the Italians’ actions were a good or bad idea? (Hint: Does your answer depend on the relative weight one puts on future costs and benefits relative to those today?)

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