Anthony and Addie Are Playing the Ultimatum Game, Starting with $100

question 383

Multiple Choice

Anthony and Addie are playing the ultimatum game, starting with $100. The coin flip results in Anthony being the one to propose a division of the $100. Anthony proposes that he gets $99 and Addie gets $1. Which of the following statements is correct?

• A)Because the 99-1 split isn't fair, Anthony should not make this offer.
• B)Conventional economic theory predicts that Anthony will propose a 99-1 split, just as he did.
• C)Experimental evidence suggests that Addie will accept the 99-1 split because, even though it isn't fair, it's better than nothing.
• D)Economic theory predicts that Anthony should choose a 60-40 split to maximize his payoff.

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Definitions:

Inefficient Outcomes

Situations in which resources are not allocated optimally, leading to lost potential value or benefits in an economy or system.

Public Sector

Part of the economy that is controlled by the government, including all public services and government-owned entities.

Principal-Agent Problem

A dilemma in which one party (the agent) may not act in the best interest of another party (the principal) who has delegated some decision-making authority to the agent.

Political Process

The set of activities involved in the acquisition and exercise of power within a governmental or organizational setting.