Econ110_Section7 - Section VII: Bargaining Daniel Egel...

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Section VII: Bargaining Daniel Egel October 19, 2008 1 Bargaining 1.1 Some Important Concepts Discounting: For the econ students in class this should be a familiar idea. This is the idea that consumption tomorrow is worse less than consumption today. We will often use δ to represent this discount where 0 < δ < 1. Specifically, $1 tomorrow (or more generally in the next period) is only worth $ δ today. 1. If I have a daily discount rate of δ = 0 . 8, how much is $1 tomorrow worth today? 2. How about if I received the dollar in two days? In two weeks? Continuum of Choices in Dynamic Setting: We will now allow people to make choices over a range of possibilities. Instead of allowing people to just choose 0 or 100, they can choose any quantity between 0 and 100 (or any other number). We will also allow people to make plays such as “accept if x 10”. We’ll do an example right now to clarify. 1.2
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Econ110_Section7 - Section VII: Bargaining Daniel Egel...

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