Explain methodology to find out equilibrium

Reference no: EM1369729

The manager of a corporate division faces possibility of an audit each 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. It 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.

Reference no: EM1369729

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