Cilus and Shane Are Playing an Ultimatum Game Where Cilus

question 68

Essay

Cilus and Shane are playing an ultimatum game where Cilus is given $50 and asked to propose a way of splitting it with Shane.When Shane learns Cilus's proposal,Shane chooses whether to accept or reject the split.If Shane accepts the split,both players receive the money according to Cilus's split proposal.If Shane rejects the split,both players receive nothing.This game will be played only once,so Cilus does not have to worry about reciprocity when making his choice.Assume that split proposals can be made only in increments of $1.
According to traditional economic theory,which presumes both players are fully rational and wish to maximize their incomes,what is the outcome of the game? Why is this outcome not observed very often in experimental settings?

---

Definitions:

Time Deposit

A deposit in a bank account that cannot be withdrawn for a preset period of time without incurring a penalty.

Maturity

The date on which a financial obligation must be repaid or the final payment is due.

Maturity Date

The specified date on which the final payment of a loan, bond, or other financial instrument is due.

Repay

To make payment back to someone from whom money has been borrowed.