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ECON0027 Week 4
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Week 4Rubinstein bargaining
Reading: Ch 16.1
Game set up
Two players are dividing a dollar:
• At odd periods, player 1 is proposing a division (x,1-x)
• Player 2 accepts it or not
• If the division is accepted the fame ends and players def their shares
• If the division is not accepted the game continues to the next period in which the players switch
roles
Players discount future payo s with discount factors NBasthegamecontinues
total shrinks
payout
a
Pl I proposing 11.2proposing
pitis proposing
jt p
iii ptinistro5ng u
A R
w
i maxuwhen
minus
w hen purisproposing
transformation
reactive putisproposing
c hange
sono strategic
a mn
identical
arestrategically
TASABILITY SEMMES
view'tastheyare dividing
Itwist
is
geti nthe
can
next
round so
views will be
always
retweet
aw.es we bar
ifthisisn't
met.pl twill
autollowing
reject
proposals
DERIVATION
t.si wis1gzii.g.nt are
e qual
bounds
v Sav v 1s Unique equilibrium as
1 as
1
II win s 1s II 15s PL2 acceptsiff 1view
sothereis
intuitivelydelayiscostly
7 55 t.s.li 1 w w.s 1gg to
incentive deviateunlessa greement
isimmediate
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