She does not look horrified until they get to that last question, at which point she starts openly staring. (She's pretty sure that plan as described wouldn't go that badly. She's not going to critique it for free.)
"Yes, so, this is the kind of thing the government tries to make sure everyone knows, because you can't have a society without it. When two or more people interact, there's a mathematically optimal way to behave when making deals and - all sorts of things. You can simplify things down to toy models like, in this case, a parable about people deciding whether to sell each other out. An empire wants to conquer a town and enslave everyone who lives there. There's one way into the town and it requires the cooperation of at least one of two people, who we'll call Ariu and Seihra, who live in town and are in charge of getting supplies and things in and out. The besiegers have made it known that if they take the town, they'll set aside a twelfth of the spoils to reward whoever helped them, as well as sparing that person and their possessions. Or, if both people help, they'll each be spared and get a twenty-fourth of the spoils - out of a slightly smaller total pool of spoils, even.
"It happens that both of the people who could betray the town like the town. But they don't like it as much as they'd like a twelfth of the spoils from conquering it. They'd be about indifferent between selling the town out for an eighteenth of the spoils and not doing that. They'd rather the town stay safe than get a twenty-fourth, but they really don't want to be enslaved.
"So Ariu thinks they'd rather betray the town, because, think of it this way: ideally, Ariu betrays them, and Seihra doesn't, and Ariu gets rich. But if Seihra does also betray them, then Ariu has to.
"And Seihra thinks the same. So Seihra would also betray the town.
"This looks like a one-time thing but it's actually a pattern. It can come up again and again in different forms. Ariu and Seihra decide whether to sell their town out. Ariu wants to buy a secret booby-trap for their house. Ariu and Seihra decide whether to hire assassins to go after each other. It comes up over and over. Two people have every reason to betray each other, will always be better off betraying than keeping faith, and would both be better off if they were both forced to keep faith.
"If it came up just the once, it'd be the smart choice to betray the other party. Because it comes up more than once, and because you never know when's the last time, betrayal is a bad choice. Because you might be better off if you betray some idiot who just goes along with it, but there aren't idiots who just go along with it, because that eventually gets you killed if you don't learn better. So you give people a chance, and if they betray you, you ruin them. And if you can't, the state should do it for you, so that people don't go around fucking with each other, so that everyone does productive things and pays more taxes."