Lee and Cody are playing a game in which Lee has the first move at A in the decision tree shown below. Once Lee has chosen either aggression or cooperation, Cody, who can see what Lee has chosen, must choose either aggression or cooperation at B or C. Both players know the payoffs at the end of each branch. Suppose Lee and Cody enter into a binding non-aggression agreement. As part of that agreement, they negotiate a fine that Cody would have to pay to Lee if Cody chooses aggression after Lee chooses cooperation. For the fine to be effective, it would have to be:

A. less than 15.
B. equal to 40.
C. equal to 25.
D. at least 15.


Answer: D

Economics

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