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3. Player 1 and Player 2 are trying to agree on how to split a pie of size 1 in a twostage bargaining game. If
3. Player 1 and Player 2 are trying to agree on how to split a pie of size 1 in a twostage bargaining game. If no agreement is reached after the two stages are complete, the pie is split for them according to a prearranged agreement that gives Player 1 and Player 2 one-quarter and three quarters of the pie, respectively. In the first stage, Player 1 makes an offer (X1, X2), where X1 + X2 = 1. Player 2 can either accept this offer (at which point the game ends and the pie is split according to Player 1's offer), or can make a counter-offer. When Player 2 makes a counter- offer, Player 1 can either accept (in which case the pie is split according to Player 2's offer) or can reject, in which case the pie is split according to the prearranged agreement. Both players have a discount factor d getting dx in the first stage (after Player 1's proposal) is as good as getting x in the second stage (after Player 2's proposal). a) In the last stage of the game, Player 1 will accept any offer giving him 2 Therefore Player 2 would offer to Player 1 and get for himself. b) In the SPNE of this game, Player 1 gets and Player 2 gets
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