Solution

ID: past-exam-of-the-computer-science-course-of-the-university-of-oxford/2018/computational-game-theory/2/e/solution

In the final round, player 1 strictly accepts every . In any subgame perfect equilibrium it must also accept with probability one. Otherwise, if that acceptance probability were , offering zero would give player 2 only . A sufficiently small positive offer would be accepted and yield more. No positive offer maximizes player 2's payoff either, because a smaller positive offer improves it. The same supremum argument rules out a mixed offer distribution attaining the missing maximum. Thus the final-round equilibrium uniquely has , accepted, with payoffs .
In round one, player 2 therefore rejects and accepts . At it is indifferent, but equilibrium again forces acceptance with probability one: if acceptance were less likely, player 1 could improve on any proposed optimum with an offer just above . Since , player 1 strictly prefers the resulting positive payoff to rejection.
Consequently the unique equilibrium outcome is immediate agreement at , giving payoffs . The full strategies are: player 1 offers initially and accepts every nonnegative final offer; player 2 accepts initial offers at least , rejects smaller ones, and offers zero in every reached final-round subgame. These prescriptions cover off-path histories too. Acceptance at indifference follows from the continuous-offer bargaining acceptance lemma, rather than an arbitrary tie-breaking convention.

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