Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 22, Problem 6QR
To determine
The ultimatum game.
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Suppose 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?.
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.
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Principles of Economics, 7th Edition (MindTap Course List)
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- Consider the following scenarios in the Ultimatum game, viewed from the perspective of the Recipient. Assume that the Recipient is motivated by negative reciprocity and will gain $15 of value from rejecting an offer that is strictly less than 50 percent of the total amount to be divided between the two players by the Proposer. Assume that the Proposer can only make offers in increments of $1. If the pot is $30, what is the minimum offer that the Responder will accept? What percent of the pie is this amount? The minimum offer that will be accepted is S. which represents percent of the pie. If the pot is $100, what is the minimum offer that the Responder will accept? What percent of the pie is this amount? The minimum offer that will be accepted is S, which represents percent of the pie. (Round answers to 2 decimal places as needed)arrow_forwardDo you believe in the principles of behavioral economics as the new way to guide economic thought and theory or are the fundamentals of traditional economics(eg. Efficient Markets Hypothesis) a necessary baseline which enables us to then understand deviations from rationality? Why? Give two examples of both real-life irrationality (behavioral economics) and rationality (traditional economics).arrow_forwardWhat do we learn about human behavior by looking at the outcomes of the Dictator Game and the Ultimatum Game? First, describe each game; then describe what the rational result should be according to Neoclassical theory; and finally describe results we see often in real life (and discuss if they differ from what Neoclassical theory/rationality would predict).arrow_forward
- How can an anticipated change affect a market players decision?arrow_forwardIn a standard economic model, we generally assume the individual only cares about their own payoff. So, for example, utility of individual i is given by u = pi, where pi is the individual’s payoff. Suppose the individual is playing a dictator game with another partner j. How would you modify the utility function to explain the non-zero allocations to the partner that are typically observed?arrow_forwardPeer pressure is an important influence on the behavior of youngsters. For instance, many preteens begin smoking because their friends pressure them into being “cool” by smoking. Using utility theory, how would you explain peer pressure? How would this compare with the explanations provided by behavioral economics and neuroeconomics?arrow_forward
- Consider the following ultimatum game. In Stage 1, the proposer chooses a shares of $1 to offer to the responder. The shares can be any number between 0 and 1 (including 0 and 1). After observing the proposer's decision, the responder may choose to accept or reject. If the responder accepts, the proposer keeps (1 − s) × $1 and the responder receives s × $1. If the responder rejects, both players receive 0. Assume that the responder always accepts when she is indifferent between accepting and rejecting. Suppose that both the proposer (Player P) and the responder (Player R) exhibit inequity aversion as specified in the model of Fehr and Schmidt (1999), with ap = aR = 2 and ẞp = ẞR = 0.6 (ap and ẞp are the parameters for player P; OR and BR are the parameters for player R). Suppose these preferences are commonly known to both players. Use backward induction to solve the subgame perfect Nash equilibrium.arrow_forwardWhy do economic agents always respond to incentivesarrow_forwardQ2. The Prisoners' Dilemma: Jill Confess Remain Silent Confess Bob: 8 years Jill: 8 years Bob: Free Jill: 20 years Bob Remain Silent Bob: 20 years Jill: Free Bob: 1 year Jill: 1 year 2A: Find Nash equilibrium? 28. Is the Nash equilibrium best outcome for them? 2C. If your answer of Q2 is 'No', then why they choose an outcome which is not best for them.arrow_forward
- What is the goal of behavioral economics? Group of answer choices To eliminate the consumers’ state of mind from consideration in economic analysis. To shift economic theory from a mathematical base to more of a psychological study. To integrate the insights of psychology into economics to enrich our understanding of decision-making. To study consumer behavior over time rather than behavior in the moment and integrate these insights in economic analysis.arrow_forwardWhat do you think of the ethics of using unconscious nudges to alter people’s behavior?arrow_forwardThe idea that standard economic model is a good predictor of behavior if people have sufficient time to learn is the __________preference hypothesis.arrow_forward
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