Consider the Ultimatum Game, a two-player game often played in experimental economics labs. In the Ultimatum Game, one player is given an amount of money and then instructed to give some arbitrary portion of it to an anonymous second player. The second player has the option of accepting the offer or rejecting it. If the second player rejects the offer, neither player gets anything.
a. According to traditional economic theory (which assumes that individuals are selfinterested utility maximizers), what should the first player offer the second?
b. What does traditional economic theory suggest the second player should be willing to accept?
c. In experimental settings, the first player often offers the anonymous second player about 50% of the initial amount. Is this result consistent with theory? Can we easily attribute this anomaly to something other than an innate sense of fairness? Explain.