Reference no: EM13975407

Consider the employee monitoring game discussed in class (Lecture Notes 3, page 18): Suppose an employee in a company can either work or shirk. The manager of the company cannot directly observe whether the employee is working or not. However, the manager can pay a cost of $10 to find out the employees behavior. If the manager finds out that the employee shirks, the manager can legally pay nothing to the employee. If, however, the manager has no hard evidence about the employees shirking, the manager has to pay the employee $100. We assume that the manager will get a payoff of $200 if the employee works and $0 if the employee shirks. In addition, we assume that it costs the employee $50 if he works.

a. Write down the game table of the above simultaneous-move game. What are the (complete) strategy sets of the players? 

b. Find all (pure-strategy and mixed-strategy) Nash equilibria for the above game.