Consider the “real” version of the ultimatum game, where Player 1 proposes a division of a...

Consider the “real” version of the ultimatum game, where Player 1 proposes a division of a sum of money x, then Player 2 decides whether or accept or reject it. If they accept, the division stands - if they reject, both players get nothing. Suppose both players treat money as utility.

(a) Draw this game using a game tree, being careful to list the payoﬀs and all elements of the tree.

(b) Solve the game for the unique SPNE.

(c) We assume that if Player 1 choose to keep all of x for themselves that Player 2 was awarded ∈ > 0. Does this matter? Explain how it changes the results (or not)?

(d) What are all of the strategies for Player 1? Player 2?

Expert Solution

Rahul Sunny answered 4 months ago

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