In the ultimatum game, which division of the amount is considered a rational choice for both the proposer and the responder who can accept or reject the offer?

Multiple choice question for Asymmetric Information. Select an option, then review the explanation below.

Explanation

In the ultimatum game, the proposer offers a split and the responder can accept or reject it. From a purely rational perspective, the proposer should offer the smallest possible amount (e.g., 1%) since the responder should accept any non-zero offer to maximize their gain. Thus, a 99/1 split is considered the rational outcome.

Practice related questions from the same subject.

1.Why do companies often distribute bonuses to employees in highly profitable years to avoid dissatisfaction among workers?
2.Which statement is incorrect regarding how individuals make decisions?
3.In a survey of voters' spending preferences for artwork in City Hall, 40% favor Rs1,000, 25% prefer Rs20,000, and 35% choose Rs22,000. What are the median, mean, and mode of these spending amounts respectively?
4.Which scenario best illustrates the concept of moral hazard?
5.What condition must a signal meet to effectively convey private information about a product or service?

In the ultimatum game, which division of the amount is considered a rational choice for both the proposer and the responder who can accept or reject the offer?

Explanation

More Asymmetric Information MCQs