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. (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

Answer 1

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