Find who is a potential investor in the project

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Reference no: EM13212632

Consider the following interaction between two entrepreneurs (players 1 and 2) who are working on a joint project, and a venture capitalist (player 3) who is a potential investor in the project. First, player 1 decides whether to devote high or low eort to preliminary work on the project. Player 2 observes this choice and then decides whether to devote high or low eort himself. They then make a presentation to the venture capitalist, who can observe which, if any, of the entrepreneurs devoted high eort to the project, and decides whether or not to invest. The payos are as follows. Each entrepreneur gets a payment of 5 if the venture capitalist invests and 0 otherwise. In addition, choosing high eort costs an entrepreneur 1, while choosing low eort is free. Investing costs the venture capitalist 2, but if he invests he gains 3 for each entrepreneur who chose high eort. If the venture capitalist does not invest, his payo is 0. Draw the game tree corresponding to this game and nd its equilibrium outcome by solving backwards.

Reference no: EM13212632

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