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What does economic theory say will be outcome of this game

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Reference no: EM133268610

Consider the following game. There are two players, A and B

In stage 1: Players A and B have $10 to divide between the two of them. Player A proposes a division of the $10, between himself and player B. Player B either accepts or rejects the proposal. If player B accepts, the proposed division is implemented. If player B rejects, the game continues to stage 2.

In Stage 2: Players A and B have 3 dollars to divide between the two of them. Player B proposes a division of the 3 dollars, between himself and player A. Player A either accepts or rejects the proposal. If player A accepts, the proposed division is implemented. If player A rejects, both players receive zero.

a) What does economic theory say will be the outcome of this game? Now consider what would happen if game is played as an experiment.

b) What would be, approximately, the average offer of player A in stage 1 (an offer here is the amount that is being proposed for player B to get)?

c) Give an example of a disadvantageous counteroffer in this game.

Reference no: EM133268610

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