MyLab Economics with Pearson eText -- Access Card -- for Microeconomics
2nd Edition
ISBN: 9780134519517
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 18, Problem 4P
To determine
Equilibrium in an ultimatum game where rejection leads to the responder and the proposer receiving
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Evaluate the following statement. “We shouldn’t generalize from what people do in the ultimatum game because $10 is a trivial amount of money. When larger amounts of money are on the line, people will act differently.”
In Figure 1, if in the status quo we are at point A, which point(s) would pass the Kaldor-Hicks compensation principle?
In Figure 1, if in the status quo we are at point A, a movement to which point(s) would pass a unanimous vote?
In Figure 1, if in the status quo we are at point A, describe what kind of side payment would be required to move to point D and cause neither Benny nor Gary to be made worse off?
An investor has a von Neumann-Morgenstern utility function, u(c)=-e^(-αc), where c represents consumption and α > 0. There are two equally probable states of nature, called 1 and 2, and two assets that can be acquired, each of which is attractive in a state of nature as follows: Each unit of asset 1 yields one unit of consumption in state 1 and nothing in state 2. Each unit of asset 2 yields nothing in state 1 and one unit of consumption in state 2. The price of each asset i is denoted by πi, which are normalized to π1 + π2 = 1. The investor has a monetary wealth of w units that must be distributed between the two assets. Denote xi the number of units of asset i that he acquires. Formulate the investor's expected utility maximization problem, subject to your budget constraint. Find the optimal quantities x of each asset i for this investor. How do these amounts of assets vary according to the α parameter? What is the economic interpretation of this relationship?
Chapter 18 Solutions
MyLab Economics with Pearson eText -- Access Card -- for Microeconomics
Knowledge Booster
Similar questions
- Why might the multiple-play ultimatum game have a different result than the single-play ultimatum game? In the multiple-play ultimatum game, the first player generally offers less money to the second player than in the single-play ultimatum game. The multiple-play ultimatum game leads to a simpler equilibrium: the first player offers exactly half of the total sum to the second player. The multiple-play ultimatum game allows for players to send signals. Therefore, the receiver can punish a player who doesn’t share enough. The multiple-play ultimatum game generally results in less cooperation because both players fall into a back-and-forth pattern of trying to punish the other player.arrow_forwardBPO Services is in the business of digitizing information from forms that are filled out by hand. In 2006, a big client gave BPO a distribution of the forms that it digitized in house last year, and BPO estimated how much it would cost to digitize each form. Form Type Mix of Forms Form Cost A 0.5 $3.00 B 0.5 $1.00 The expected cost of digitizing a form is . Suppose the client and BPO agree to a deal, whereby the client pays BPO to digitize forms. The price of each form processed is equal to the expected cost of the form that you calculated in the previous part of the problem. Suppose that after the agreement, the client sends only forms of type A. The expected digitization cost per form of the forms sent by the client is . This leads to an expected loss of per form for BPO. (Hint: Do not round your answers. Enter the loss as a positive number.)arrow_forwardTwo players play the Ultimatum Game, in which they are to split $20. A purely rational agent would only reject an offer of … Group of answer choices... -$20 -$19 -$1 -$0 -$10arrow_forward
- Billy John Pigskin of Mule Shoe, Texas, has a von Neumann-Morgenstern utility function of the form u(c) = √c. Billy John also weighs about 300 pounds and can outrun jackrabbits and pizza delivery trucks. Billy John is beginning his senior year of college football. If he is not seriously injured, he will receive a $1,000,000 contract for playing professional football. If an injury ends his football career, he will receive a $10,000 contract as a refuse removal facilitator in his home town. There is a 10% chance that Billy John will be injured badly enough to end his career. If Billy John pays $p for an insurance policy that would give him $1,000,000 if he suffered a career-ending injury while in college, then he would be sure to have an income of $1,000,000 − p no matter what happened to him. Write an equation that can be solved to find the largest price that Billy John would be willing to pay for such an insurance policy. Here is my question: Why is Billy's income 1,000,000 - p even…arrow_forwardConsider two individuals whose utility function over wealth I is ?(?) = √?. Both people face a 10 percent chance of getting sick, and foreach the total cost of illness equals $50,000. Suppose person A has a total net worth of $100,000, and person B has a total net worth of $1,000,000. Both people have the option to buy an actuarially fair insurance contract that would fully insure them against the cost of the illness. a. Using expected utility calculations, show that person A would certainly buy full, actuarially fair insurance. b. Suppose an insurance company wants to maximize profits and wants to charge each customer the maximum price they are willing to pay. How much should the insurance company charge each client so that both buy the contract? c. What is surprising about your result in part b? What does this tell you about how insurance companies may be pricing health insurance contracts in the real world?arrow_forwardWe learned that we can use choice between a gamble over someone's best and worst outcomes and getting an outcome of interest (like getting pizza) for certain as a way to assign numeric values to utility (on a scale of 0 to 1). Using this method, if you are indifferent between the following: A gamble that has a 0.3 chance of your best possible outcome (and no lower chance), and a 0.7 chance of your worst possible outcome. Getting pizza for certain. it means that your utility for getting pizza is:arrow_forward
- Give an example, real or imaginary, of an adverse selection problem. Your example must clearly point out: what information is private/asymmetric (is it an attribute or an action?) which party has the private information when does the information asymmetry arise (before or after the contract/transaction?) what is the likely outcome and in which way it can be inefficientarrow_forwardTwo players play the Ultimatum Game, in which they are to split $20. A purely rational agent would only reject an offer of …arrow_forwardSuppose Justine and Sarah are playing the ultimatum game. Justine is the proposer, has $140 to allocate, and Sarah can accept or reject the offer. Based on repeated experiments of the ultimatum game, what combination of payouts to Justine and Sarah is most likely to occur?.arrow_forward
- Consider the St. Petersburg Paradox problem first discussed by Daniel Bernoulli in 1738. The game consists of tossing a coin. The player gets a payoff of 2^n where n is the number of times the coin is tossed to get the first head. So, if the sequence of tosses yields TTTH, you get a payoff of 2^4 this payoff occurs with probability (1/2^4). Compute the expected value of playing this game. Next, assume that utility U is a function of wealth X given by U = X.5 and that X = $1,000,000. In this part of the question, assume that the game ends if the first head has not occurred after 40 tosses of the coin. In that case, the payoff is 240 and the game is over. What is the expected payout of this game? Finally, what is the most you would pay to play the game if you require that your expected utility after playing the game must be equal to your utility before playing the game? Use the Goal Seek function (found in Data, What-If Analysis) in Excel.arrow_forwardThe chicken game has often been used to model crises. Recall that in this game, the two players drive straight at each other. They can choose to swerve or keep going straight. If one swerves, and the other goes straight, assume that the one that swerves gets -10 utility and the one that goes straight gets 10 utility, since the one that swerves is deemed the loser. If both swerve, both get 0 utility. If both go straight, they crash and get -50 utility. Assume both players have a discount rate of 0.9 Draw the stage game of date night List all pure strategy Nash equilibria of the single stage game Consider an infinite horizon version of Chicken. Can you get an SPNE in which the both players swerve using a grim trigger type strategy? Consider the following strategies: both players swerve, as long as neither ever went straight. If one player ever plays straight, in all subsequent rounds the player that swerved goes straight and the player that went straight swerves. Can you think…arrow_forwardTry the following variant of the Let’s Make a Deal game. Again one of the three boxes contains a prize, but now there are two players, 1 and 2. Assume Player 1 picks Box A and Player 2 picks Box B. The host (who again has perfect knowledge) opens Box B, which contains junk, and Player 2 leaves the show. Player 1 can either stay with Box A or switch to Box C. Using Bayes’ theorem, show that now it does not pay Player 1 to switch, that is, the probability Player 1 will win with Box C is 1/2, the same as the probability Player 1 will win by staying with Box A.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
