Consider a variant of the ultimatum game we studied in class in which players have fairness considerations. The timing of the game is as usual. First, player 1 proposes the split (100 – x, x) of a hundred dollars to player 2, where x € [0, 100]. Player 2 observes the split and decides whether to accept (in which case they receive money according to the proposed split) or reject (in which case they both get 0 dollars). But now player i's utility equals to her monetary utility minus the disutility from unfairness proportional to the difference in the monetary outcomes. That is, given a final split (m1, m2), let u1(m1, m2) = m1 – B1(m1 – m2)² uj(m1, m2) = m2 – B2(m1 – m2)², where ß1, ß2 are parameters of the game indicating how strongly players care about fairness. Note that the case we considered in class corresponds to B1 = B = 0.

Consider a variant of the ultimatum game we studied in class in which players have fairness considerations. The timing of the game is as usual. First, player 1 proposes the split (100 – x, x) of a hundred dollars to player 2, where x € [0, 100]. Player 2 observes the split and decides whether to accept (in which case they receive money according to the proposed split) or reject (in which case they both get 0 dollars). But now player i's utility equals to her monetary utility minus the disutility from unfairness proportional to the difference in the monetary outcomes. That is, given a final split (m1, m2), let u1(m1, m2) = m1 – B1(m1 – m2)² uj(m1, m2) = m2 – B2(m1 – m2)², where ß1, ß2 are parameters of the game indicating how strongly players care about fairness. Note that the case we considered in class corresponds to B1 = B = 0.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.7P

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