Consider the Accompanying Decision Tree and Information to Answer the Questions

question 12

Multiple Choice

Consider the accompanying decision tree and information to answer the questions that follow.
The decision tree depicts two players (Jane and Aaron) playing an ultimatum game where Aaron is given $1,000 and asked to propose a way of splitting it with Jane. When Jane learns Aaron's proposal, Jane chooses whether to accept or reject the split. If Jane accepts the split, both players receive the money according to Aaron's split proposal. If Jane rejects the split, both players receive nothing. This game will be played only once, so Aaron does not have to worry about reciprocity when making his choice.
There are four sets of payoffs at the terminal nodes of the decision tree. In each node, the dollar amount to the left of the comma represents Aaron's payoff, and the dollar amount to the right of the comma represents Jane's payoff.

-Assume that Aaron and Jane are two experimental subjects who follow bounded rationality.What is the likely outcome of the game if Aaron chooses to make an unfair proposal?

• A) Jane will accept and Aaron will receive a payoff of $999.
• B) Jane will accept and Aaron will receive a payoff of $1.
• C) Jane will accept and Aaron will receive a payoff of $0.
• D) Jane will reject and Aaron will receive a payoff of $500.
• E) Jane will reject and Aaron will receive a payoff of $0.

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Definitions:

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