Question: Consider the 5 stage bargaining game with full information in which $1 million is to be split between players 1 and 2. Player 1 makes

Consider the 5 stage bargaining game with full information in which $1 million is to be split between players 1 and 2. Player 1 makes the offers in the odd periods, while player 2 makes the second and fourth offers. Player 1 and 2 have discount factors of 1 = 0.8 and 2= 0.6, respectively. The disagreement payoffs are zero.

a.Find the backward induction solution of the game. (10)

b.Do you expect that humans behave according to the prediction in part a? Why or why not? (5)

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