(Solution) 15-5 Auditing Game The Manager Of A Corporate Division Faces The Possibility Of An Audit Every Year. | Snapessays.com


(Solution) 15-5 Auditing Game The manager of a corporate division faces the possibility of an audit every year.


15-5 Auditing Game

 

The manager of a corporate division faces the possibility of an audit every year. She prefers to

 

spend time preparing if she will be audited; otherwise, she would prefer to invest her time elsewhere.

 

The auditor, who gets recognized for uncovering problems, prefers to audit unprepared

 

clients. If the players match their actions (i.e., the manager prepares and the auditor audits, or

 

the manager doesn’t prepare and the auditor doesn’t audit), the manager wins with a payoff of

 

20, and the auditor loses with a payoff of 20. If the actions don’t match, the auditor wins with a

 

payoff of 20, and the manager loses with a payoff of 20. Diagram this game, and comment on

 

the equilibrium.

 


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This question was answered on: May 23, 2022

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