Question

Peggy and Marcy are playing an ultimatum game where Peggy is given $500 and asked to propose a way of splitting it with Marcy. When Marcy learns Peggy’s proposal, Marcy chooses whether to accept or reject the split. If Marcy accepts the split, both players receive the money according to Peggy’s split proposal. If Marcy rejects the split, both players receive nothing. This game will be played only once, so Peggy does not have to worry about reciprocity when making her choice. Which of the following split proposals would Marcy be most likely to accept if she and Peggy were playing the game in an experimental session and both players adhered to bounded rationalism? Peggy receives $350.00 and Marcy receives $150.00. Peggy receives $250.00 and Marcy receives $250.00. Peggy receives $449.99 and Marcy receives $50.01. Peggy receives $400.00 and Marcy receives $100.00. Peggy receives $499.99 and Marcy receives $0.01.

Answer 1

The possible payoffs to Marcy are- 150 from the first proposal, 250 from the second proposal, 50.1 from the third proposal, 100 from the fourth proposal, and 0.01 from the fifth proposal.

It is given that Marcy is a rational individual, that is, willing to maximize payoff given the set of the possible outcomes. And it is given that if Marcy rejects proposal then $500 won't be distributed between the two, that is, zero payoffs for both. Thus, for Marcy choosing the positive amount is better than choosing zero payoff by refusing proposal.

Out of these possible set of outcomes the maximum payoff is offered in proposal second and also the given amount halved between the two. Any proposal other than the second proposal is increasing the payoff for Peggy and reducing payoff of Marcy. Thus, the second proposal is the most preferred proposal for Marcy in the given set of possible proposals by Peggy.

So, the second proposal is more likely to be accepted by Mercy.