ECO320Y5 Study Guide - Midterm Guide: W. M. Keck Observatory, Pareto Efficiency, Nash Equilibrium
Document Summary
Tutorial 4 - monday, october 7, 2019 - Jen suspects brad is having an affair with angie. Her prenup contract specifies that if she files for divorce, she receives. Her payment becomes ,000. 00 if she can prove adultery. Jen"s lawyer can prove this if he hires a private detective. Jen fears her lawyer will tell her that he has hired the detective, even when he did not. Jen may choose one of two types of contracts with her lawyer. One type of contract requires jen to pay ,000. 00 regardless of what she gets. Jen has two possible actions, either to pay ,000 lump-sum or pay 1/3rd of whatever she gets to her lawyer. Similarly, lawyer can either hire the detective and proof that brad commits adultery or does not hire the detective and thus cannot proof the adultery. We can calculate the pay-offs of all the possible outcomes. Jen"s pay-off: payment received when adultery is proved - lump-sum payment =
