However, inspections are costly, about 50 pence per inspected passenger, and on top of that really a nuisance when someone is caught who has not paid, because of the time and possible later paperwork involved. Explain why this player is risk-averse. Now assume that the game is changed such that inspector can inspect with a probability p that he commits to for executing inspections, and that this probability is made known to the passenger. Draw the game tree that describes this game. Determine the subgame perfect equilibrium of this game, completely specifying the strategy of each player.
Rejection means both players get nothing.
Describe all subgame perfect equilibria of this game. Describe all Nash equilibria of this game. If you plan to specify the complete strategic form of this game, restrict yourself to strategies that have the property that whenever player II accepts an amount, he will also accept any larger amount that is offered to him.