(To solve this problem, instead of a "game matrix," you'll want to sketch out two "decision trees," one of which depicts the customer as the "first mover," and the other depicting the shopkeeper as the "first mover.")Again, you may want to employ color-coding to keep the "players" and outcomes organized.

Consider a sequential game between a shopkeeper and a haggling customer.Assume that the item being negotiated over is a rare, antique MacGuffin that's virtually impossible to find elsewhere.

The party who moves first chooses either a high price ($50) or low price ($20), and the second mover either agrees to the price or walks away from the deal, whereupon neither party gets anything.

Assume that the customer values the MacGuffin at $60.(Ignore any other costs.)

(Note that if a deal can be reached, the payoff to the shopkeeper is, obviously, the selling price, while the payoff to the customer is the consumer surplus received.)

Suppose that it's widely known that the shopkeeper is an extremely hard bargainer who never accepts a low price, even if it means behaving "irrationally" and giving up the sale.Given this knowledge, if the customer moves first, he will...

a.

Offer the high price

b.

Offer the low price

c.

Walk away from the deal