Consider the following dynamic game between two players. Each player chooses one of the actions "keep" or "share" when it is his/her turn to move. There is initially a pot of money with $2 dollars in it. P1 moves first. If he chooses "keep" the game ends with P1 getting all the cash in the pot, and P2 getting nothing. If he chooses "share", $200 dollars is added to the pot, and the game proceeds to the next stage, where P2 gets to choose. If P2 chooses "keep" she gets all the money in the pot, and P1 gets nothing, and the game ends. If she chooses "share", $2000 is added to the pot, and P1 gets to choose one last time. If P1 then chooses "keep" he gets to walk away with all the cash. If he chooses "share", a further $20,000 is added to the pot. Then, in this last round P2 gets a choice: either keep all the cash in the pot or to split the cash in half with P1. The game ends after this choice. How many dollars does P1 earn in the equilibrium?

Consider the following dynamic game between two players. Each player chooses one of the actions "keep" or "share" when it is his/her turn to move. There is initially a pot of money with $2 dollars in it. P1 moves first. If he chooses "keep" the game ends with P1 getting all the cash in the pot, and P2 getting nothing. If he chooses "share", $200 dollars is added to the pot, and the game proceeds to the next stage, where P2 gets to choose. If P2 chooses "keep" she gets all the money in the pot, and P1 gets nothing, and the game ends. If she chooses "share", $2000 is added to the pot, and P1 gets to choose one last time. If P1 then chooses "keep" he gets to walk away with all the cash. If he chooses "share", a further $20,000 is added to the pot. Then, in this last round P2 gets a choice: either keep all the cash in the pot or to split the cash in half with P1. The game ends after this choice. How many dollars does P1 earn in the equilibrium?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter15: Strategic Games

Section: Chapter Questions

Problem 3MC

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