Consider a bargaining situation where the pie can be allocated only in three ways: The first player gets all the pie, the second player gets all the pie, the pie is split equally among the two players. Both players have constant and identical discount rates δ. For each of the three possible allocations of the pie, find out for which values of δ there is a a subgame perfect equilibrium such that this allocation can be offered and accepted in the first round of the game of alternating offers. (Note: the subgame perfect equilibria with a certain property that only applies to a part of the game, namely that a specific allocation is proposed and accepted in round 1 of the game.) The approach starts at some period ?+1 in the future (under the restriction that only these three divisions are possible). You make an assumption about what could be an equilibrium outcome in this period. This allows you to explain what are best replies of the player in period ? (again, under the restriction that only three
Consider a bargaining situation where the pie can be allocated only in three ways: The first player gets all the pie, the second player gets all the pie, the pie is split equally among the two players. Both players have constant and identical discount rates δ. For each of the three possible allocations of the pie, find out for which values of δ there is a a subgame perfect equilibrium such that this allocation can be offered and accepted in the first round of the game of alternating offers. (Note: the subgame perfect equilibria with a certain property that only applies to a part of the game, namely that a specific allocation is proposed and accepted in round 1 of the game.)
The approach starts at some period ?+1 in the future (under the restriction that only these three divisions are possible). You make an assumption about what could be an equilibrium outcome in this period. This allows you to explain what are best replies of the player in period ? (again, under the restriction that only three divisions are possible). Then you proceed with period ?-1. Then you figure out what may happen in period 1.
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