(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...

(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.