Question

1. One of the most popular games ever created is called the Ultimatum Game. In this game, there are two players: proposer and responder. The proposer moves first and is given $10 to split. Suppose they can offer any integer amount from 0,1,2,...,10. The responder observes this offer and has two choices: accept or reject. If the responder accepts, the proposed offer goes through. If the responder rejects, both players receive $0. What is the Nash Equilibrium in this game? (Proposer, Responder)

A. (5,5)

B. (6,4)

C. (8,2)

D. (9,1)

2. Suppose the proposer can make offers in terms of pennies, how does that change the equilibrium offer?

A. The equilibrium offer goes up

B. The equilibrium offer goes down

C. The equilibrium offer is unchanged

Answer 1

1) the nash equilibrium is the point at both players are benefited

At 5,5 both proposer and responder benefited equally

So nash equilibrium occur at (5,5)

2) option B is correct

The equilibrium point shifts down

I.e equilibrium offer goes down