In a Dictator Game, Player a Must Divide $100 Between

question 320

Multiple Choice

In a dictator game, player A must divide $100 between player A and player B. In this game, player B does not have the opportunity to reject an offer - he or she goes home with whatever player A offers. Experiments have observed that when player A splits the $100, he or she consistently offers over $10 to player B. Which of the following comments fits best.

• A)Although player A is acting as economic theory usually assumes, he or she makes such offers because they seem more fair.
• B)Although player A is acting as economic theory usually assumes, he or she makes such offers although they are not fair.
• C)Although player A is not acting as economic theory usually assumes, he or she makes such offers because they seem more fair.
• D)Although player A is not acting as economic theory usually assumes, he or she makes such offers because they are not fair.

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Definitions:

Risk Averse

The tendency to prefer certainty over risk, where an individual opts for the investment with the least potential for financial loss.

NPV

A financial metric that calculates the total value of a project or investment by discounting future cash flows back to their present value and subtracting initial investment cost.

Scenario Analysis

A business planning technique in which the implications of variations in planning assumptions are explored. Also known as “what-if-ing.”

Abandonment Option

A financial decision allowing companies to cease a project or investment to avoid further losses.