Two people decide to split inheritance. Take this as a sequential game. Round1 :Sister offers a split
Question:
Two people decide to split inheritance. Take this as a sequential game.
Round1:Sister offers a split (x, 1-x) where x = amount she receives, 1 - x = amount brother receives. The brother can choose to accept or reject.Should the brother reject, it moves toround 2 where the brother then offers a split (y, 1-y) where y =amount brother gives to sister, 1 - y = amount brother receives. Future value is discounted by db and ds for brother and sister respectively, where these discount constants to be between 0 and 1.Should rejection occur in the last round, then the inheritance will be donated to charity and each of them will receive a payoff of -1.
[5m] Explain how the SPE is derived.
[5m] Fully describe the SPE.
[5m] Explain the logic behind the share of inheritance received by each player in an SGPE
[5m] If there were 3 stages to the game (ie sister offers the final split), explain how the SPE changes.