Conventional economic theory suggests that in the ultimatum game, the player proposing a split of $50 will propose that she get $49 and that the other player get $1. By the same reasoning, if the amount to be split is $1000, the player proposing the split will propose that she gets
A)$500 and that the other player gets $500.
B)$998 and that the other player gets $2.
C)$999 and that the other player gets $1.
D)$1000 and that the other player gets nothing.

Question

Quizplus · Accepted Answer

Conventional economic theory assumes that players are rational and self-interested. In the ultimatum game, the proposer's goal is to maximize their own share of the money while also ensuring that the responder will accept the offer. The responder's goal is to maximize their own share of the money, even if it means rejecting the offer and neither player receives anything.

In the case of a $1000 split, proposing a split where the proposer gets $998 and the responder gets $2 (option B) may seem like a good choice since the proposer gets the larger share. However, it is possible that the responder will reject this offer since they only receive a small amount. This means that both players will receive nothing, which is not an optimal outcome for the proposer.

On the other hand, proposing a split where the proposer gets $500 and the responder gets $500 (option A) may seem fair, but it is not the best choice for the proposer. If the responder is rational and self-interested, they may reject this offer and neither player will receive anything.

The best choice for the proposer is to propose a split where they get a large share of the money while also offering the responder a reasonable share that will incentivize them to accept the offer. In this case, the proposer should choose option C, where they get $999 and the responder gets $1. This offer ensures that the proposer gets the lion's share of the money, while the responder still receives a small amount, which should be enough to incentivize them to accept the offer.

Conventional Economic Theory Suggests That in the Ultimatum Game, the Player