Question

In: Economics

1. One of the most popular games ever created is called the Ultimatum Game. In this...

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. (The proposer can make offers in pennies now) Assume for a moment, the responder has non-standard preferences. The responder is outraged at "unfair" outcomes in direct proportion to how far the outcome is removed from the "fair" outcome. If the responder believes a 5-5 split is fair, and their utility from rejecting an offer of x < 5 is 5-x, what is the equilibrium offer from the proposer if offers can be made in terms of pennies?

A. 5
B. 2.49
C. 2.51
D. 1.99

Solutions

Expert Solution

1) option A is correct

At 5,5 nash equilibrium will occur

2) option B is correct

2.49 is less than 5

And 5-2.49=2.51

Which is the equilibrium offer from the proposer


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