Edgar and Felicity Are Players in an Ultimatum Game for $100

question 277

Multiple Choice

Edgar and Felicity are players in an ultimatum game for $100, where Felicity is the proposer and Edgar is the responder. Suppose that Felicity proposes that she receive $95, while Edgar receives only $5. How would behavioral economists expect Edgar to respond?

• A)Even though Edgar would be better off having $5 versus nothing, Edgar will likely see the offer as unfair and reject it.
• B)Edgar will accept the $5, as rejecting it would be economically irrational.
• C)Edgar will suggest a counteroffer that he would accept.
• D)Edgar will accept the offer if he is thinking with brain System 1 but reject it if thinking with brain System 2.

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Definitions:

Capital Markets

Capital markets are venues where savings and investments are channeled between suppliers who have capital and those who are in need of capital.

Long-Term Debt

Debt that is due for repayment more than one year into the future.

Equity Securities

Financial assets representing ownership interest in a company, such as stocks, that provide voting rights and potential dividends.

Securities

Financial instruments representing ownership (stocks), a debt agreement (bonds), or rights to ownership (derivatives).