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Rationality vs. Fairness in Decision-Making
Consider a one-shot interaction where a Proposer is given $100 and must offer a portion to a Responder. The Responder can accept, and they both get the proposed shares, or reject, and both get nothing. Compare and contrast the likely decision-making process and final choice of two different Responders when faced with a low offer (e.g., $10):
- A Responder who acts solely to maximize their own monetary gain.
- A Responder who is part of a social group that highly values fairness and is willing to punish perceived injustice, even at a personal cost.
In your analysis, break down the motivations influencing each Responder's potential decision.
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Ch.5 The rules of the game: Who gets what and why - The Economy 2.0 Microeconomics @ CORE Econ
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In a one-time interaction, a Proposer is given $100 and must offer a portion of it to a Responder. The Responder can either accept the offer, in which case they both keep their shares, or reject it, in which case both receive nothing. The Responder is part of a social group known for valuing fairness and equality among its members above all else, and they are willing to enforce these norms even at a personal cost. If the Proposer offers the Responder just $10, what is the Responder's most likely action and why?
The Seafarer's Share
Rationality vs. Fairness in Decision-Making
In a one-shot interaction where a sum of money is to be split, an individual who rejects an offer of 20% of the total sum is acting irrationally, because receiving 20% is always financially preferable to receiving nothing.
Comparing Decision-Making Models
In a one-shot ultimatum game, a Proposer is given $100 and must offer a portion to a Responder. If the Responder rejects the offer, both players receive nothing. Match each Responder profile below to the minimum offer they would most likely accept.
You are a Proposer in a one-time interaction where you must split $100 with a Responder. If the Responder accepts your offer, you both get the agreed-upon shares. If they reject it, you both get nothing. You know from reliable sources that the Responder belongs to a community that values equal outcomes so strongly that they will reject any offer they perceive as unfair, even if it means they receive no money. To maximize your own financial gain, what offer should you make to the Responder?
The Responder's Dilemma
The Captain's Offer
In a one-time, anonymous interaction, one person (the 'Proposer') is given $1,000 and must offer a portion of it to a second person (the 'Responder'). If the Responder accepts the offer, the money is split as proposed. If the Responder rejects the offer, both people receive nothing. The Proposer offers $10, and the Responder rejects it. An observer concludes, 'The Responder's decision was irrational because receiving $10 is always better than receiving $0.' Which of the following statements provides the best critique of the observer's conclusion?
In a one-shot interaction where a sum of money is to be split, an individual who rejects an offer of 20% of the total sum is acting irrationally, because receiving 20% is always financially preferable to receiving nothing.