Let's think about a traditional game theory principal agent game. In this game we have two players, Lauren and Jason Lauren will choose to invest $500 dollars with Jason If she doesn't invest the money, she keeps the $500 and Jason gets nothing If she does invest the money, then Jason has a choice-he can cooperate by investing Lauren's money and then splitting the profit of another $500. This would give Lauren $750 (her original $500 investment plus $250 of profit) and would give Jason $250. Jason's other choice is to appropriate, or to steal Lauren's money and not invest it. If he does this, Lauren ends up with nothing and Jason has the entire $500. The following diagram outlines this game. Principal Agent Game Joson (750. 250) Louren oppropriate 10 s00 oninvest What will happen in this game? Lauren will not invest Lauren will invest and Jason will cooperate Lauren will invest and Jason will appropriate Next page

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