Let consider the following game among an employer (Katharine) and an employee (Kevin). Katharine needs Kevin to work hard rather than loaf around and that is why she considers spending more time supervising him. She needs to choose among a low and a high level of supervision. All else the similar, Kevin prefers to loaf. Both players must simultaneously explain their actions.
a) What are Katharine's best responses in this game? Verify the Nash equilibrium of the game. What are the rationality assumptions implicit in this equilibrium?