Scenario: Pat and Joe are playing a game. The rules of the game are simple. Pat is given $100. He can either give it to Joe or keep it for himself. If he keeps it for himself, $50 will be taken back, and the remaining will be split between them. If he gives it to Joe, Joe can either divide it into two equal parts or keep it for himself. If he divides it into two equal parts, each of them will get $50. If he does not split the money, he will get the entire amount.
-Refer to the scenario above.Which of the following is likely to be true in equilibrium if Joe is known to be trustworthy?

Question

Quizplus · Accepted Answer

If Joe is trustworthy, Pat would prefer to give the money to Joe rather than keeping it for himself because he would receive nothing if he keeps it for himself. Joe, on the other hand, would want Pat to give him the money so that he can split it equally and both can receive $50 each. Therefore, the likely outcome in equilibrium would be that Pat gives the money to Joe, and Joe splits it equally, resulting in both of them receiving $50 each.

Scenario: Pat and Joe Are Playing a Game