Eden and Kevin are supposed to bake an apple pie together. If both contribute, the size of the pie is 14. If only one shows up, the size is 6, while if neither shows up there will be no pie. The cost of showing up and contributing to the 'manufacturing process' is 2 for each. Having just learned the Rubinstein bargaining game, they agree in advance to play it when splitting the pie. They decide that they will play the 2-period version of the alternating offer game and Eden won the toss so he will be the first to propose a division. This is known before they decide whether to show up to bake the pie. As time goes by, the pie gets stale, so they both prefer eating the pie as soon as possible. This is captured by their (common) discount factor 8 € (0,1). For what values of 8 is it a subgame perfect Nash equilibrium that both of them contribute to the pie? Make sure that you specify the interval for which both players have a dominant strategy to contribute, as well as the intervals over which each player will contribute as long as the other player contributes. [Hint: Think of this as a two-stage game: in the first stage they decide simultaneously whether or not to contribute to making the pie, and in stage two they play the 2-period Stahl-Rubinstein bargaining game to split the pie.]
Eden and Kevin are supposed to bake an apple pie together. If both contribute, the size of the pie is 14. If only one shows up, the size is 6, while if neither shows up there will be no pie. The cost of showing up and contributing to the 'manufacturing process' is 2 for each. Having just learned the Rubinstein bargaining game, they agree in advance to play it when splitting the pie. They decide that they will play the 2-period version of the alternating offer game and Eden won the toss so he will be the first to propose a division. This is known before they decide whether to show up to bake the pie. As time goes by, the pie gets stale, so they both prefer eating the pie as soon as possible. This is captured by their (common) discount factor 8 € (0,1). For what values of 8 is it a subgame perfect Nash equilibrium that both of them contribute to the pie? Make sure that you specify the interval for which both players have a dominant strategy to contribute, as well as the intervals over which each player will contribute as long as the other player contributes. [Hint: Think of this as a two-stage game: in the first stage they decide simultaneously whether or not to contribute to making the pie, and in stage two they play the 2-period Stahl-Rubinstein bargaining game to split the pie.]
Chapter8: Game Theory
Section: Chapter Questions
Problem 8.5P
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