 The NE outcome here is at the single leftmost node descending from node 8. To see this, backward induct again. At node 10, I would play L for a payoff of 3, giving II a payoff of 1. II can do better than this by playing L at node 9, giving I a payoff of 0. I can do better than this by playing L at node 8; so that is what I does, and the game terminates without II getting to move. A puzzle is then raised by Bicchieri (along with other authors, including  Binmore (1987)  and  Pettit and Sugden (1989))  by way of the following reasoning. Player I plays L at node 8 because she knows that Player II is economically rational, and so would, at node 9, play L because Player II knows that Player I is economically rational and so would, at node 10, play L. But now we have the following paradox: Player I must suppose that Player II, at node 9, would predict Player I’s economically rational play at node 10 despite having arrived at a node (9) that could only be reached if Player I is not economically rational! If Player I is not economically rational then Player II is not justified in predicting that Player I will not play R at node 10, in which case it is not clear that Player II shouldn’t play R at 9; and if Player II plays R at 9, then Player I is guaranteed of a better payoff then she gets if she plays L at node 8. Both players use backward induction to solve the game; backward induction requires that Player I know that Player II knows that Player I is economically rational; but Player II can solve the game only by using a backward induction argument that takes as a premise the failure of Player I to behave in accordance with economic rationality. This is the paradox of backward induction.