Question

Edgar and Felicity are players in an ultimatum game for $100, where Felicity is the proposer and Edgar is the responder. Suppose that Felicity proposes that she receive $95, while Edgar receives only $5. How would behavioral economists expect Edgar to respond?
A.Even though Edgar would be better off having $5 versus nothing, Edgar will likely see the offer as unfair and reject it.
B.Edgar will accept the $5, as rejecting it would be economically irrational.
C.Edgar will suggest a counteroffer that he would accept.
D.Edgar will accept the offer if he is thinking with brain System 1 but reject it if thinking with brain System.

Answer 1

Answer:

A) Even though Edgar would be better off having $5 versus nothing, Edgar will likely see the offer as unfair and reject it.

Explanation:

Of course Edgar would be better off having $5 versus nothing, even 1¢ is better than nothing, but that doesn't mean that Edgar lacks common sense.

There is an old saying: "common sense is the least common of the senses".

One of the pillars of modern economy is that individuals (consumers) are rational, or have some degree of common sense. Felicity's proposal is completely unfair and Edgar should reject it, at least to try to negotiate a better offer.