Consider the Following Decision Tree and Information When Answering the Following

question 123

Multiple Choice

Consider the following decision tree and information when answering the following questions:
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 practice bounded rationality.If Aaron were to offer an unfair proposal,he would likely receive a payoff of ________,but if he were to offer a fair proposal,he would likely receive a payoff of ________.

• A) $0; $0
• B) $0; $999
• C) $999; $0
• D) $500; $0
• E) $0; $500

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Definitions:

Gross Profits

The difference between revenue and the cost of goods sold before deducting overhead, payroll, taxes, and interest payments.

Payoff Table

A decision-making tool that summarizes the outcomes of different decisions, given various states of nature, in a tabular format.

Optimal Alternative

The best possible choice among various options under consideration, often based on specific criteria or outcomes.

Expected Opportunity Loss

A statistical concept that calculates the expected amount of loss for not choosing the best alternative.