Edgar and Felicity Are Players in an Ultimatum Game for $100

question 277

Multiple Choice

Edgar and Felicity are players in an ultimatum game for $100, where Felicity is the proposer and Edgar is the responder. Suppose that Felicity proposes that she receive $95, while Edgar receives only $5. How would behavioral economists expect Edgar to respond?

• A)Even though Edgar would be better off having $5 versus nothing, Edgar will likely see the offer as unfair and reject it.
• B)Edgar will accept the $5, as rejecting it would be economically irrational.
• C)Edgar will suggest a counteroffer that he would accept.
• D)Edgar will accept the offer if he is thinking with brain System 1 but reject it if thinking with brain System 2.

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Definitions:

Vertical Analysis

An approach to financial statement examination where each component within the principal groups of accounts (assets, liabilities, and equity) on a balance sheet is shown as a ratio of the overall category amount.

Total Assets

The sum of all resources owned by an entity, measured in monetary terms, and represented on the balance sheet.

Accounts Receivable Turnover

A financial ratio indicating how quickly a company collects cash from credit sales by measuring the number of times receivables are collected over a period.

Net Sales

Total revenue from sales minus returns, allowances, and discounts.