Question

Scenario: Elly owns a small coffee shop. She has only one employee. One weekend, she decides to take a break from work. She is wondering whether she should trust her employee to run the shop in her absence. If she does not trust him, she would have to keep the shop closed, in which case neither she nor her employee will be able to make money. In contrast, if she trusts him, he can either cooperate and run the shop or he can defect and steal from the shop. If he cooperates, both of them will earn money. If he steals from the shop, he will make more money while she will lose.Refer to the scenario above. Elly should use to make her decision. A. backward induction B. mixed strategies C. her dominant strategy D. forward induction

Answer 1

Answer: Option A

         

Explanation:  In simple words, backward induction refers to the process under which an individual starts analyzing a performance from the end results and go backward to the steps to determine where actually the actions went wrong.

This technique is generally used for analyzing complex subjects which requires high technology or knowledge. It helps the individuals to determine what actions should be rectified in future so that same problems would not occur again.

In the given case, Elly is willing to analyze the whole subject by starting right from the results. Hence we can conclude that she is using backward induction.