Scenario I The Following Scenario Describes Research Findings Discussed in the Following

question 15

Multiple Choice

Scenario I
The following scenario describes research findings discussed in the following review article:
Cameron, C. C. & Thaler, R. H. (1995) . Anomalies: Ultimatums, dictators, and manners. Journal of Economic Perspectives, 9(19) , 209-219.
In the ultimatum game, two participants are assigned to be either the "Divider" or the "Decider" by a coin flip. The Divider is given a sum of money, such as $10, and is instructed to offer some non-zero portion of it to the Decider. If the Decider accepts, she gets to keep what was offered and the Divider keeps the rest. If the Decider rejects the deal, both players get nothing. Both players are made aware of all of these rules and then the game begins. Under these conditions, Dividers usually offer a little less than $5 and Deciders usually accept this amount. If Dividers offer less, Deciders often reject and both players get nothing. A similar game is termed the dictator game. Players are randomly assigned to be either the "Allocator" or the "Receiver." The Allocator is given a sum of money and makes a decision about how much money she would like to give the Receiver, who must accept this result. Allocators in this game usually offer some money to the Receiver, but typically less than the Dividers in the ultimatum game.
-(Scenario I) Replications of the ultimatum game with larger pots of money found similar results to the original studies. Which real-world anecdote is consistent with results from a large-stakes ultimatum game?

• A)As the economic magnitude of a sale increases, the seller is more likely to adopt a door-in-the-face technique and begin with a high sticker price before negotiating to a fair price.
• B)A home seller would rather foreclose and lose everything than accept a low-ball offer from a buyer.
• C)Credit card companies vary interest rates and credit limits based on the risk associated with credit applicant.
• D)Rather than risk not being signed by another team as a free-agent, a veteran football player accepts a below-league-average salary to remain with his team.

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Definitions:

Money Multiplier

The mechanism by which the base money supply is expanded through the banking system's ability to lend and create deposits.

Reserve Ratio

The portion of depositors' balances that banks must have on hand as cash.

Bank Leverage

The ratio of a bank's total debt to its equity capital, indicating the extent to which bank funding is used to finance its assets.

Bank Insolvency

A condition where a financial institution's liabilities exceed its assets, rendering it incapable of meeting its obligations.