1. Consider the following experimental results. Four experimental subjects under conditions of anonymity (who communicate only via computer) choose whether to keep $10 or to "invest" it. Amounts invested are doubled and divided equally among the four players. The interaction is repeated 10 times with each individual paired with different fellow subjects. What happens is that initially there is lots of investment, but by the end of ten rounds there is virtually no investment.

Subjects are then given an additional option. At the end of each round, they can take $X away from any of the other subjects in their group of four at the cost of one-half $X. Another ten rounds are played. By the end of the ten rounds virtually everyone invests the whole of their $10.

Analyze what is going on from the perspective of rational self-interest and then consider how Frank would explain the results.

2. Draw the extensive form of the deterrence interaction described by Frank on page 48 (though with money outcomes rather than preference indices). Why would it be advantageous for Smith to restrict his freedom. How should this restriction be depicted in the extensive form of the game?

3. What is the point of the cartoon on p. 55 of Frank's essay?

4. How, according to Frank, could cooperativeness evolve?