Two Players Are Playing a Game

question 43

Essay

Two players are playing a game.Player 1 is given $100 and is asked to offer a certain share of the money to Player 2.Player 2 can then choose to accept or reject the offer.If she accepts the offer,the money will be split between the two players in the ratio as decided by Player 1.If she rejects the offer,neither player will get anything.
a)Assume that both players prefer more money to less.How would Player 1 choose her optimal strategy in this case?
b)If Player 2 prefers fairness to money,how will her decision change?

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Definitions:

Retention Ratio

The proportion of net income that is retained in the business rather than distributed to shareholders as dividends.

Dividend Payout Ratio

A financial indicator showing the proportion of a company's profits distributed to its shareholders as dividends.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from revenues. It's often referred to as the bottom line.

Capital Intensity Ratio

A metric that measures the amount of assets needed by a company to generate one dollar of revenue.