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Game Theory: Shubhasis Dey

The document describes three alternative-offers models of game theory: 1) A basketball game ticket bargaining model where a buyer and seller alternately make offers until the end of the game. 2) A two-round home bargaining game where the buyer and seller make offers with known minimum/maximum prices and discount factors. 3) A bargaining game where players alternate offers each period and discount future payoffs, exploring different discount rates and bargaining pie values.

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Swaraj Kumar Dey
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53 views6 pages

Game Theory: Shubhasis Dey

The document describes three alternative-offers models of game theory: 1) A basketball game ticket bargaining model where a buyer and seller alternately make offers until the end of the game. 2) A two-round home bargaining game where the buyer and seller make offers with known minimum/maximum prices and discount factors. 3) A bargaining game where players alternate offers each period and discount future payoffs, exploring different discount rates and bargaining pie values.

Uploaded by

Swaraj Kumar Dey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Game Theory

Shubhasis Dey
Alternative-Offers Model I
• A basketball game has four quarters. You do not have a ticket to the
game, but you take a chance to get one near the stadium. You are
willing to pay max Rs. 25 for watching each quarter in the stadium.
No asymmetric information. Fortunately, there is a singe seller near
the stadium who sees you, the only buyer, and makes the first offer.
If you do not agree, you go to the nearby bar and watch on the big-
screen TV. At the end of the first quarter you come out and find the
seller still there, you then make a counteroffer. If the seller does not
agree, you go back to the bar. At the end of the second quarter the
seller makes you yet another offer. If not agreeable, you go back to
the bar and emerge at the end of the third quarter and make a
counteroffer. At the end of the fourth quarter the ticket is worthless
to you.
Alternative-Offers Model II
A two-round home bargaining game: The minimum the
seller will sell his home for is 150,000 and the maximum the
buyer is willing to pay is 200,000. Both players know these
two amounts and are bargaining over the difference, M =
50,000. Assume the disagreement values are 0 for both
players. Suppose the buyer moves first by making a
proposal and the seller can accept or reject it. If the seller
rejects the buyer’s proposal, the seller gets to make a
counterproposal, which the buyer can then accept or reject.
The game is then over. Suppose that both players discount
future income using a period discount factor of δ = 0.5.
What is the sale price of the home?
Alternative-Offers Model II
A two-round home bargaining game: The minimum the
seller will sell his home for is 150,000 and the maximum the
buyer is willing to pay is 200,000. Both players know these
two amounts and are bargaining over the difference, M =
50,000. Assume the disagreement values are 0 for both
players. Suppose the buyer moves first by making a
proposal and the seller can accept or reject it. If the seller
rejects the buyer’s proposal, the seller gets to make a
counterproposal, which the buyer can then accept or reject.
The game is then over. Suppose that players discount future
income using a period discount factor of δ1 = 0.5 and δ2 =
0.3. What is the sale price of the home?
Alternative-Offers Model III
• Players 1 and 2 are bargaining over a rupee
• Player 1 makes offers in odd periods and
player 2 in even periods, game continues until
one player accepts an offer
• Players are impatient, they discount payoffs
received later period by a discount factor 0 < δ
<1
Problem
• Imagine an alternating-offer bargain game, but instead of
discounting future payoffs by δ and keeping the size of the
pie fixed at 1, assume instead that in each period the value
of the ‘pie’ is reduced by one:
• In the first period, v1 = V , in the second v2 = V − 1, in the
third v3 = V − 2, etc., and there is no discounting.
• Find the Nash equilibria pair of offers for
– V = 3 and
–V=4
• Assume that player 1 makes the offer first, the player 2 and
so on.

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