PS6 - Problem Set 6 ECN 416 Game Theory Ying Chen Spring...

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Problem Set 6 ECN 416 Game Theory Ying Chen, Spring 2010 Three questions due March 25, at the beginning of class 1 . Suppose you are trying to buy a house and you are bargaining with the current owner over the sale price. The house is worth $200 000 to you and $100 000 to the current owner. So if the price is between $100 000 and $200 000 , then you would both be better o f with the sale. Assume the bargaining takes place with alternate o f ers and that each stage of bargaining (an o f er and a response) takes a full day to complete. If agreement is not reached after 5 days of bargaining, then the opportunity for the sale disappears (you will have no house and the current owner has to keep the house forever). Suppose that you and the current owner discount the future according to the discount factor per day. The real estate agent has allowed you to decide whether or not you shall make the f rst o f er. (a) Suppose that is small. In particular  1 2 . Should you make the f rst o f er or let the current owner make the o f er?Why?
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This note was uploaded on 04/04/2010 for the course ECN 416 taught by Professor Y.chen during the Spring '10 term at ASU.

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PS6 - Problem Set 6 ECN 416 Game Theory Ying Chen Spring...

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