Split the profits with an 80-20 split

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Elaine as senior partner can make a take-it-or-leave it offer to her junior partner John to undertake a project and split the profits of $10,000. She considers just two offers: an 80-20 split (favoring Elaine), or a 50-50 split. Upon receiving Elaine's offer, John can either accept or reject. Accepting will yield payoffs according to the offer, while rejection will result in 0 for both. Assume both are risk neutral. Represent this as an extensive-form game and solve by backward induction.

Reference no: EM13179847

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