Suppose That an Economics Professor Selects Two Students, Audrey and Michael

question 161

Multiple Choice

Suppose that an economics professor selects two students, Audrey and Michael, to participate in a classroom experiment. The professor gives Audrey twenty $1 bills. Audrey must pick an allocation of the twenty $1 bills to offer to Michael. If Michael accepts the allocation, each student keeps his or her portion of the money. If Michael rejects the allocation, the professor keeps the $20, and each student receives nothing. Audrey selects $19 for herself and $1 for Michael. Based on the studies of human decision making, which of the following statements is correct?

• A)If Michael accepts the offer, he is behaving rationally.
• B)If Michael rejects the offer, he may value fairness more than $1.
• C)If Michael rejects the offer, Audrey made a bad choice by trying to keep $19 for herself.
• D)Any of the above could be correct.

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