(Optional, requires appendix) An auditor for the IRS is
reviewing Wanda’s latest tax return (see Exercise S10), on which she reports
having had a bad year. Assume that Wanda is playing according to her
equilibrium strategy and that the auditor knows this.
(a) Using Bayes’ rule, find the probability that Wanda
had a good year given that she reports having had a bad year.
(b) Explain why the answer in part (a) is more or less
than the baseline probability of having a good year, 0.6.