an auditor and a taxpayer play the following strategic game. The auditor must choose hether to Audit (A) the taxpayer or not (N). The taxpayer independently decides whether o be Honest (H) in reporting her income or to Cheat (C). Since auditing is costly, the uditor prefers not to audit the taxpayer if she reports honestly, but prefers to audit if the axpayer cheats. If the taxpayer is caught cheating (i.e. if she cheats and is audited), then he receives a severe punishment. If she is not caught, she prefers cheating to being honest. uppose that payoffs are as in the following matrix: Auditor Taxpayer C H A 2,0 4,-10 N 4,0 0,4 (a) Find all (mixed strategy) Nash equilibria of this game.

an auditor and a taxpayer play the following strategic game. The auditor must choose hether to Audit (A) the taxpayer or not (N). The taxpayer independently decides whether o be Honest (H) in reporting her income or to Cheat (C). Since auditing is costly, the uditor prefers not to audit the taxpayer if she reports honestly, but prefers to audit if the axpayer cheats. If the taxpayer is caught cheating (i.e. if she cheats and is audited), then he receives a severe punishment. If she is not caught, she prefers cheating to being honest. uppose that payoffs are as in the following matrix: Auditor Taxpayer C H A 2,0 4,-10 N 4,0 0,4 (a) Find all (mixed strategy) Nash equilibria of this game.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 18.1IP

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