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In a study conducted at the economic laboratory, Person A is randomly paired with (N - 1) participants.
The pairing is anonymous, meaning that neither individual will ever know the identity of the other
individuals with whom he or she is paired.
In the experiment, all the group members will make a choice, the experimenter will record this choice,
and then individuals will be informed of the choices and paid money based on the choices made by all
individuals, as well as a small participation fee. Suppose that neither individual will receive
any other money for participating in the experiment.
Each member of the group will receive 10€, in addition to the participation fee.
Each member of the group will then have the opportunity to deposit their money between a PRIVATE account
and a PUBLIC account. Each member of the group can deposit 0€, 2€, 4€, 6€, 8€ or 10€ to the PUBLIC account.
The remainder is deposited to the PRIVATE account. Participants' payoffs are equal to the sum of earnings
from the PRIVATE account plus earnings from the PUBLIC account. Each 1€ placed by Person A in the PRIVATE
account generates a cash return to (and to Person A alone) of 1€. Every member of the group receives the
same return for the money Person A places in the group account. Similarly, Person A receives the same return
for every money that the other members of the group deposit to the PUBLIC account. Thus, Person A's earnings
are the number of money he/she deposits to the PRIVATE account, plus the return from all money Person A
and the other members of the group deposit to the PUBLIC account. (Specifically, the total amount of money
in the PUBLIC account is (return) and then equally divided among N members of the group). All members of
the group have to take simultaneously the same decision. These choices will determine how much money each
individual will receive, privately and in cash, at the end of the experiment. Therefore, individuals' payoff
depends on their deposits in the PRIVATE account and in the total deposits in the PUBLIC account.
Since the decisions are taken simultaneously, Person A does not know the amount of money that other members
of the group will deposit to the PUBLIC account. Other members of the group do not know the amount of money
that Player A, or the other players, will deposit to the PUBLIC account.
Please evaluate the possible actions of Person A.
(For example, Person A could deposit 2€ to the PUBLIC account. This gives 8€ to Person A
(the return from the PRIVATE account) and 2A€ to all N members of the group (including Person A).
The total amount received by Person A is the sum of his PRIVATE return and the PUBLIC return of all
money deposited in the PUBLIC account by all members of the group.)
Please make sure you understand the situation.
Please evaluate the possible actions of Person A.