Problem
Economists argue that consumers are utility maximizers who weigh the pleasure of consuming an extra unit versus the cost to consume an extra unit. Behavioral economists and psychologists both question this vision of human interaction. There is a game that behavioral economists use called the dictator game. In this game two people have to decide how to divide up some money given to them. One person is the dictator who decides what percentage to give to the other player. The second player has only one decision to accept or decline the offer of the first player (who is called the dictator). If the second person accepts the offer both players walk away with the money. If the second player rejects the offer neither the dictator nor the second player get anything.
So imagine you are playing this game as the second player and you are both given a 10 dollars and the dictator decides to offer you 25 cents and that she/he will keep $9.25. Your only choice is to accept the 25 cents or reject the offer and get no money at all.
What would you do? What would be considered 'rational' from the perspective of utility maximization? What would you do if this is a continued game and the same scenario will happen multiple times not just once? Do you think others will react the same way you would?