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:

Profit or Loss

A financial statement that provides a summary of a company's revenues, costs, and expenses over a specific period, showing the net amount earned or lost.

Open Interest

the total number of outstanding derivative contracts, like futures or options, that have not been settled.

Futures

Legal agreements that compel the purchaser to buy, or the seller to dispose of, an asset at an agreed price and date in the future.