Asked by Carlos Iturralde on Jul 27, 2024
Verified
Suppose you and a complete stranger must split $100 in even dollar increments.You propose a split, and the stranger with whom you are splitting the $100 either accepts or rejects.If she rejects, you both receive nothing.
a.What is the Nash equilibrium for this game?
b.The Nash equilibrium solution is not frequently observed in practice.Explain why.
Nash Equilibrium
An idea in game theory that suggests a player cannot improve their situation by changing strategy if every other player's strategy remains the same.
Even Dollar Increments
A pricing strategy where goods or services are priced in whole dollar amounts rather than including cents.
Complete Stranger
A person whom one does not know or with whom one is not familiar.
- Recognize and elucidate the different cognitive biases and heuristics affecting economic choices, including the anchoring effect and hyperbolic discounting.
- Examine how behavioral economics accounts for variations from classical economic forecasts in market dynamics.
Verified Answer
AP
Alisa PankhaJul 29, 2024
Final Answer :
a.You should propose $99 for yourself, $1 for the stranger.Offers perceived as an unfair split are often rejected, even though it is in the best interest of the stranger to accept any nonzero offer.This is an example of social norms at work.
Learning Objectives
- Recognize and elucidate the different cognitive biases and heuristics affecting economic choices, including the anchoring effect and hyperbolic discounting.
- Examine how behavioral economics accounts for variations from classical economic forecasts in market dynamics.
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