Two players are bargaining over a three period bargaining model as discussed in class with player 1 making offers in rounds 1 and 3. Player 2 makes an offer in round 2 only. Each player has a common discount factor delta. The two players are bargaining to split $20. They have three time periods available to them for their bargaining game. At the end of round 3, if no agreement has been reached then player 1 receives $2 and player 2 receives $1 and the rest of the money is destroyed. Find the subgame perfect Nash equilibrium outcome in the finite horizon model in which the game ends after period 3.
Two players are bargaining over a three period bargaining model as discussed in class with player 1 making offers in rounds 1 and 3. Player 2 makes an offer in round 2 only. Each player has a common discount factor delta. The two players are bargaining to split $20. They have three time periods available to them for their bargaining game. At the end of round 3, if no agreement has been reached then player 1 receives $2 and player 2 receives $1 and the rest of the money is destroyed. Find the subgame perfect Nash equilibrium outcome in the finite horizon model in which the game ends after period 3.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Two players are bargaining over a three period bargaining model as discussed in class with player 1 making offers in rounds 1 and 3. Player 2 makes an offer in round 2 only. Each player has a common discount factor delta. The two players are bargaining to split $20. They have three time periods available to them for their bargaining game. At the end of round 3, if no agreement has been reached then player 1 receives $2 and player 2 receives $1 and the rest of the money is destroyed. Find the subgame perfect Nash equilibrium outcome in the finite horizon model in which the game ends after period 3.
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