Find and report the subgame perfect equilibrium

Assignment Help Business Management

Reference no: EM131250171

Most of this exercise does not concern players' preferences about risk, but it is a good example of a game with moves of nature that can be analyzed by using subgame perfection. Consider a T-period bargaining game like the alternating-offer game discussed in Chapter 19, except suppose that in each period, nature chooses which player gets to make an offer.

At the start of a period, nature selects player 1 with probability q₁ and player 2 with probability q2 , where q₁ + q₂ = 1. The selected player proposes a split of some surplus (of size 1). The other player then responds by accepting or rejecting the offer. Acceptance ends the game and yields the payoff associated with the proposal, discounted according to the period in which agreement is made. Rejection leads to the next period, except in period T, in which case the game ends with zero payoffs. Assume the players are risk neutral and have the same discount factor d.

(a) Describe the extensive form of this game.

(b) Find and report the subgame perfect equilibrium.

(c) What are the equilibrium payoffs? Offer an interpretation in terms of the standard bargaining solution (bargaining weights and a disagreement point).

(d) Suppose T = 2 and that the players are not necessarily risk neutral. How would you expect the players' risk preferences to influence the equilibrium proposals that are made in the first period?

Reference no: EM131250171

Questions Cloud

How large must the wage offer be in order : How large must the wage offer be in order for the worker rationally to accept the safe job? - What is the firm's maximal payoff in this case?

Calculate the change in exergy of the r-410a : A heat pump has a COP of 2 using a power input of 3 kW. Its low temperature is T0 and its high temperature is 80?C, with an ambient at T0. Find the fluxes of exergy associated with the energy fluxes in and out.

Provide examples of situations in which would be beneficial : Provide examples of situations in which it would be beneficial to a private sector organization for the leadership style to be that of conserver, zealot, or advocate. Which style of leadership is most beneficial to either law enforcement organizat..

How was the environment or area set up to encourage play : How was the environment or area set up to encourage play? What could you do to the environment to help facilitate enhanced play skills and other developmental skills

Find and report the subgame perfect equilibrium : Describe the extensive form of this game. - Find and report the subgame perfect equilibrium. - What are the equilibrium payoffs?

What is the drop in flow exergy : Find the rate of both energy and exergy (a) from the hot gases and (b) from the condenser.

Which of these is your biggest area of improvement : Which of these is your biggest area of improvement? What are your short-term leadership goals within your current workplace (within the next year)? What are your long-term leadership goals (one to five years from now)?

Discussion-comparing and contrasting economic systems : Natural disasters and wars are crises that impact every type of economy, regardless of economic system. All types of economic systems struggle to respond quickly to such destruction.

What number should you pick to maximize your expected payoff : Suppose you are player 2 and you know that player 3 is sequentially rational. If player 1 selected n1 = 1, what number should you pick to maximize your expected payoff?

User Account

All Pages