Consider a Game in Which a Person Called the Proposer

question 151

Essay

Consider a game in which a person called the proposer is given $200. The proposer must choose to split the money with a person called the responder. The money must be split in one of three ways:
(1) Proposer keeps $199; responder gets $1.
(2) Proposer keeps $100; responder gets $100.
(3) Proposer keeps $50; responder gets $150.
The responder can either accept or reject the proposer's offer. If the responder rejects the offer, both players get nothing. Illustrate this game in extensive form. Using backward induction, what is the outcome of this game?

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Definitions:

Excise Tax

A tax on specific goods, such as alcohol and tobacco, typically imposed at the point of manufacture or sale.

Total Tax Revenue

The total amount of money collected by the government from taxes, which can come from various sources like income taxes, sales taxes, and corporate taxes.

Shrimp Market

The global or local market involved in the trading and selling of shrimp, encompassing both wild-caught and farmed shrimp.

Excise Taxes

Excise taxes are taxes paid when purchases are made on a specific good, such as gasoline. They are often included in the price of the product.