e38fbf73ccad21b95b7036bf1339456c_f26bf1e98341334e84ce0e251983e460.docx

E38fbf73ccad21b95b7036bf1339456c_f26bf1e98341334e84ce0e251983e460.docx

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Name(s): ______________________________ ________________________________ ECONOMICS 201: Games and Experiments in Economics PROBLEM SET #2 Turn in a clean final version of your answers. Answer in the space provided. You don’t need to type your answers but you must show your work! Please staple all pages and print double-sided. Good Luck! 1. (Bargaining - “take-it-or-leave-it ) Suppose the minimum price at which the seller will sell her house is $150,000 and the maximum price the buyer will pay for the house is $160,000. Both players know these two amounts and are bargaining over the difference, M=$10,000. Assume the disagreement values are 0 for both players. a) Suppose the buyer makes the “take-it-or-leave” offer to the seller. What is the sale price of the home, according to NE? _________________ Draw the Game tree. b) Suppose instead it is seller who makes the “take-it-or-leave” offer to the buyer. What is the sale price of the home, according to NE? ______________ c) Is there first mover advantage in case of “take-it-or-leave” offers? Yes / No 2. (Bargaining – “take-it-or-leave it” versus “take-it-or-counteroffer” ) Suppose the minimum price at which the seller will sell her car is $5,000 and the maximum price the buyer will pay for the car is $8,000. Both players know these two amounts and are bargaining over the difference, M=$3,000. Assume the disagreement values are 0 for both players. a. Suppose there is only one round of bargaining – that is “ take-it-or-leave-it ” Ultimatum game. a.1 If buyer makes the proposal, what is the sale price of the car? ____________________ Draw the game tree:
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a.2 If the seller makes the proposal, what is the sale price of the car? ____________________ Result: Comparing a1 and a2, one can conclude that if the game lasts only one round, the first / second mover has an advantage. (circle one).
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