Microeconomics - With Access (Custom)
20th Edition
ISBN: 9781259877551
Author: McConnell
Publisher: MCG
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Chapter 8, Problem 2P
To determine
Efficiency of purchase choices based on offers.
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In the Ultimatum Game, player 1 is given some money (e.g. $10; this is public knowledge), and may give some or all of this to player 2. In turn, player 2 may accept player 1’s offer, in which case the game is over; or player 2 may reject player 1’s offer, in which case neither player gets any money, and the game is over.
a. If you are player 2 and strictly rational, explain why you would accept any positive offer from player 1.
b. In reality, many players reject offers from player 1 that are significantly below 50%. Why
One type of systematic error arises because people tend to think of benefits in percentage terms rather than in absolute dollar amounts. As an example, Samir is willing to drive 20 minutes out of his way to save $4 on a grocery item that costs $10 at a local market. But he is unwilling to drive 20 minutes out of his way to save $10 on a laptop that costs $400 at a local store. In percentage terms, how big is the savings on the grocery item? On the laptop? In absolute terms, how big is the savings on the grocery item? On the laptop? If Samir is willing to sacrifice 20 minutes of his time to save $4 in one case, shouldn’t he also be willing to sacrifice 20 minutes of his time to save $10?
Two 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
-$10
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