Question

Alice and Benjamin are bargaining over $40. Each can make a single demand, which can be either $10, $20, or $30. If their demands add up to $40 or less, each gets the amount they demand (any leftover amount is lost). If their demands add up to more than $40, each gets zero.

(a) Suppose both people make their demands simultaneously. Use techniques from game theory to find the solution(s) of this game. What will be the money earnings of Alice and Benjamin?

(b) Suppose Alice chooses her demand first, and her choice is observed by Benjamin before he makes his choice. Use techniques from game theory to find the solution(s) of this game. What will be the money earnings of Alice and Benjamin?

(c) How would the answer to (b) change if Alice chose her demand first, but this choice was not observed by Benjamin until after he made his choice?

Answer 1