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Answer :
The correct answer is b) Accept any offer r ≥ 0.
In this negotiation scenario, the CBA has the option to offer any interest rate r between 0 and 10. The payoff to the CBA is r, and the payoff to Myer is 10 – r if Myer accepts the offer. If Myer rejects the offer, both parties receive a payoff of 0.
To find the credible (subgame perfect) equilibrium, we need to consider Myer's best response to any offer made by the CBA. Myer's best response would be to accept any offer r where Myer's payoff is greater than or equal to 0, which means r ≤ 10.
However, if Myer can reject the offer and receive a payoff of 0, it would strictly prefer that to any offer where Myer's payoff is less than 0. So, the CBA must offer an interest rate r where Myer's payoff is exactly 0, which occurs when r = 10.
Therefore, the CBA makes an offer of r = 10 in the credible (subgame perfect) equilibrium.
The correct answer is c) r = 10.
In any credible equilibrium, Myer's strategy would be to accept any offer r ≥ 0. Myer's goal is to maximize its payoff, and it achieves the highest payoff when accepting any non-negative offer from the CBA. If Myer rejects the offer, both parties receive a payoff of 0, which is strictly worse than accepting any offer with a positive payoff.
Therefore, Myer's strategy in any credible equilibrium is to accept any offer r ≥ 0.
The correct answer is b) Accept any offer r ≥ 0.
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