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Amy and Ben are bargaining over a business opportunity that is worth $100,000. Amy has an outside option that will give her $10,000 if she does not reach an agreement . Ben’s outside option is also $10,000. Bargaining proceeds as follows: First Amy proposes a division, then Ben accepts or rejects. If Ben accepts, the division is implemented (and the game ends). If Ben rejects, then the business opportunity drops to $50,000 in value and Ben himself gets to propose a division. Then Amy accepts or rejects. If she accepts then the division is implemented (and the game ends). If she rejects then the business opportunity drops to $25,000. Amy makes one final proposal. If Ben rejects then each player obtains their outside option (and the game ends). Assume that if a player is indifferent between accepting or rejecting a proposed division, then the player always accepts the division. Using backward induction, the prediction is that… Amy proposes $45,000 for herself and $55,000 for Ben. Amy proposes $50,000 for herself and $50,000 for Ben. Amy proposes $65,000 for herself and $35,000 for Ben . Amy proposes $90,000 for herself and $10,000 for Ben .

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Amy and Ben are bargaining over a business opportunity that is worth $100,000. Amy has

an outside option that will give her $10,000 if she does not reach an agreement . Ben‘s outside option is also $10,000. Bargaining proceeds as follows: First Amy proposes a division, then Ben accepts or rejects. If Ben accepts, the division is implemented (and the game ends). If Ben rejects, then the business opportunity drops to $50,000 in value and Ben himself gets to propose a division. Then Amy accepts or rejects. If she accepts then the division is implemented (and the game ends). If she rejects then the business opportunity drops to $25,000. Amy makes one final proposal. If Ben rejects then each player obtains their outside option (and the game ends). Assume that if a player is indifferent between accepting or rejecting a proposed division, then the player always accepts the division. Using backward induction, the prediction is that…

Amy proposes $45,000 for herself and $55,000 for Ben.

Amy proposes $50,000 for herself and $50,000 for Ben.

Amy  proposes $65,000 for herself and $35,000 for  Ben .

Amy  proposes $90,000 for herself and $10,000 for  Ben .

 
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