Learn Before
  • Use of Controlled Experiments to Empirically Investigate Economic Behavior

  • Determinants of Bargaining Outcomes: Preferences and Rules of the Game

  • Sequential Game

Ultimatum Game

The ultimatum game is a two-person strategic interaction used to study how mutual benefits are shared. It is a sequential game where players act in a specific order. The first player (the Proposer) suggests a division of a 'pie' (e.g., $100), and can typically offer any amount within that total. The second player (the Responder) then chooses to either accept the offer, splitting the pie as proposed, or reject it, resulting in both players receiving nothing.

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Introduction to Microeconomics Course

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  • Imagine a negotiation where a Proposer must offer a split of 100toasingleResponder.IftheResponderaccepts,themoneyissplitasproposed;iftheyreject,neitherpersonreceivesanything.Now,considerachangetothisstructure:theProposerstillhas100 to a single Responder. If the Responder accepts, the money is split as proposed; if they reject, neither person receives anything. Now, consider a change to this structure: the Proposer still has 100 but now faces two Responders. The Proposer makes a single take-it-or-leave-it offer, and the first Responder to accept it gets the offered amount, while the Proposer keeps the remainder. How would the introduction of a second Responder most likely affect the share of the $100 that the Proposer offers?

  • Explaining Different Bargaining Outcomes

  • In any negotiation, the final outcome is influenced by the 'rules of the game' (the institutional structure of the interaction) and the 'preferences' of the participants (their personal values, such as fairness or self-interest). For each scenario described in the left column, match it to the primary determinant in the right column that best explains the behavior or outcome.

  • True or False: In a one-time negotiation to split a sum of money, if the only preference of both participants is to maximize their own personal gain, the specific process used for the negotiation (e.g., who makes the first offer, whether counter-offers are allowed) will not affect the final division of the money.

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Learn After
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  • Analyzing a Seemingly Irrational Economic Decision

  • A two-person game is structured as follows: Player 1 (the Proposer) is given a sum of money and must offer a portion of it to Player 2 (the Responder). The Responder can then either accept the offer, in which case the money is split as proposed, or reject it, in which case both players receive nothing. Arrange the following events of a single round of this game in the correct chronological order.

  • According to a model where individuals are assumed to be perfectly rational and motivated solely by self-interest, a Responder in the ultimatum game should reject any offer they perceive as unfair, even if it is greater than zero.

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  • Match each role or outcome in the ultimatum game with its corresponding description.

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