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In Stage 2, you will always start a period with a salary of 750 Lira. Your personal payoff is based on the following components:

1) your salary,
2) the cost of the approach you choose, and
3) your share of the team bonus based on the performance of the project.

The cost of the project approach will be subtracted from your payoff.

Any team bonus earned will be equally split between you and the other employee and added to your payoff.

Remember there are two approaches to working on the project: HIGH and LOW. The cost of each approach and the increase in the team bonus resulting from your approach are provided in the table below:

Approach	Cost	Increase of Team Bonus
HIGH	400 Lira	500 Lira
LOW	40 Lira	80 Lira

NOTE: The increase in the team bonus is equally split between you and the other employee.

The total team bonus if you and the other employee each choose LOW is: 80 × 2 = 160 Lira. The total team bonus if you and the other employee each choose HIGH is: 500 × 2 = 1,000 Lira . If one of you chooses HIGH and the other chooses LOW, the total team bonus will be: 500 + 80 = 580 Lira.

Your payoff is calculated by starting with your Salary minus the Cost of your approach plus half of the sum of your increase to the team bonus (T1) and the other employee’s increase to the team bonus (T2). Below is the formula for calculating your payoff in each period:

Payoff = Salary – Cost + 1/2 (T1 + T2)

Accordingly, there are four potential outcomes which are summarized in the payoff table (including salary and team bonus) below:

Your Choice	Other Employee's Choice	Your Payoff	Other Employee's Payoff
LOW	LOW	790	790
LOW	HIGH	1000	640
HIGH	LOW	640	1000
HIGH	HIGH	850	850

You will be given this payoff table during each period.

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