Question

Malik is the top employee at the local Deloitte office, and he just received a competing offer from PwC. Deloitte is considering how to retain Malik and is choosing between offering him a one-time money bonus or offering him extra vacation time. Based on what they offer him, Malik can then choose to stay or leave. The payoffs are given in the following sequential game tree: At the Nash equilibrium, Deloitte will choose ____________ and Malik will respond with ____________.

Deloitte: $500K Malik: $200K Stay Money Bonus Malik Leave Deloitte: $300K Malik: $300K Deloitte Deloitte: $400K Malik: $350K Stay Extra Vacation Malik Leave Deloitte: $250K Malik: $275K

There is no Nash equilibrium.

Money Bonus ; Stay Money Bonus ; Leave Extra Vacation ; Stay Extra Vacation ; Leave

Answer 1

Answer:

Extra vacation, stay.

Explanation:

We are Solving this using backward induction method.

If Deloitte chooses money bonus, then Malik will respond with leave, because this gives him higher payoff.

If Deloitte chooses extra vacation then Malik will respond with stay, because this gives him higher payoff of 350.

Among money benefit and extra vacation Deloitte will choose extra vacation because extra vacation will give Deloitte higher payoff of 400 than choosing money benefit which gives 300.

The Nash equilibrium is extra vacation, stay.

stay $500k Н: $ 2 0 1 200) Зоъ ) M MB leave зоъ M р: $ + 3 от к СА- (Stay $ Чоъ К. $ 3So 2 M ч оb) 3so) leave D: $ 25ои и: $ 27Sk