Question

Elly owns a small coffee shop. She has only one employee. One weekend, she decided 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. On the other hand, 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) mixed strategies
B) backward induction
C) forward induction
D) her dominated strategy

Answer 1

Answer: (B) Backward induction

Explanation:

 The backward induction is basically used for making the decisions and it is the process of solving the various types of problems by determining the action properly.

In any type of situation, the backward induction basically used the optimal strategy type for making some effective result of the given situation.

According to the given scenario, Elly should use the backward induction process for making the decisions more effectively regarding her shop.

Therefore, Option (B) is correct.