Scenario: the Ultimatum Game Is a Two-Player Game Played as Follows

question 84

Multiple Choice

Scenario: The ultimatum game is a two-player game played as follows. One player, the proposer, is told to divide a sum of money between the two players. The proposer proposes how to divide the sum. The other player, the responder, then chooses to either accept or reject the proposal. If the responder accepts the proposal, the money is split according to the proposal. If the responder rejects the proposal, neither receives any money. When this game is played by real people from a common social group, it is frequently observed that the proposer offers close to 50-50 split and the responder rejects offers below 30 percent of the sum.
-Refer to the scenario above.According to the theory presented in the textbook,if the proposer offered 1 percent,should the responder accept?

• A) Yes, because, if the responder rejected the offer, he will end up with nothing.
• B) Yes, because 1 percent is the maximum the proposer will ever offer.
• C) No, because, if the responder rejected the offer, he will get more.
• D) No, because, 1 percent is the minimum the responder can expect from the proposer.

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Definitions:

Equilibrium Quantity

The amount of goods or services available matches the amount requested at the market price.

Consumer Surplus

Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually pay.

Total Surplus

The sum of consumer surplus and producer surplus in a market, representing the total benefits to society from the trade of goods or services.

Equilibrium

A state of balance where demand equals supply in a market, leading to a stable price.