Deck 7: Ultimatum Game and Market Implications

Question 1

In making higher than the minimal offer in the ultimatum game, proposers are more concerned with being rejected for making small offers rather than any concerns of being observed by the experimenter. We know this because:

A) Offers in the impunity game where there is no punishment option for the receivers are lower than those in double-blind anonymity games (making sure that no one can learn about proposer offers).
B) Offers in the impunity game where there is no punishment option for the receivers are higher than those in double-blind anonymity games (making sure that no one can learn about proposer offers).
C) Offers in the ultimatum game are lower than those in the dictator game.
D) Offers in the ultimatum game are higher than those in the dictator game.

Answer 1

Offers in the impunity game where there is no punishment option for the receivers are lower than those in double-blind anonymity games (making sure that no one can learn about proposer offers).

Question 2

In making higher than the minimal offer in the ultimatum game, proposers are more concerned about the possibility of rejection rather than about being altruistic to the responder. We know this because:

A) Offers in the ultimatum game are typically higher than those in the dictator game.
B) Offers in the ultimatum game are typically lower than those in the dictator game.
C) Offers in the ultimatum game are higher under single-blind protocols than under double-blind protocols.
D) Offers in the ultimatum game are lower under single-blind protocols than under double-blind protocols.

Answer 2

Offers in the ultimatum game are typically higher than those in the dictator game.

Question 3

In rejecting small offers in the ultimatum game, the recipients are typically objecting to the unfair intent behind the offer rather than the magnitude of the offer itself. We know this because:

A) Recipients are typically willing to accept small offers from computerized proposers but expect larger offers from human proposers.
B) Proposers offer substantial amounts both in the dictator and ultimatum games.
C) The amounts offered by proposers do not vary widely across cultures.
D) The amounts offered vary widely across cultures starting from family-based hunter gatherers to cooperative whale hunters.

Answer 3

Recipients are typically willing to accept small offers from computerized proposers but expect larger offers from human proposers.

Question 4

In laboratory tests of the ultimatum game using buyers and sellers in a market context, "demand withholding" is likely to be more pronounced when:

A) The surplus accruing to sellers is much larger than that accruing to buyers and the buyers are made aware of this discrepancy.
B) The surplus accruing to buyers is much larger than that accruing to sellers the buyers are made aware of this discrepancy.
C) The surplus accruing to sellers is equal to that accruing to buyers and the buyers are made aware of this discrepancy.
D) The surplus accruing to sellers is much larger than that accruing to buyers, but the buyers are completely unaware of this fact.

Question 5

Suppose in an ultimatum game, out of an initial endowment of $10, a proposer offered to keep $8 and offer $2 to the receiver. The probability of this offer being rejected will be lower if:

A) the only other alternative option is one where the proposer gets $10 and the receiver gets $0.
B) the only other alternative option is one where both the proposer and the receiver get $5 each.
C) the game is played using a double-blind protocol instead of a single-blind protocol.
D) the game is played using a single-blind protocol instead of a double-blind protocol.

Question 6

"A landlord rents out a small house. When the lease is due for renewal, the landlord learns that the tenant has taken a job very close to the house and is therefore unlikely to move. The landlord raises the rent $40 per month more than he was planning to do." In surveys, a large majority of respondents find this to be unfair. This is because:

A) Pricing strategies that deliberately exploit the dependence of a particular individual is considered offensive by many.
B) There are rental market laws against such large and arbitrary rent increases.
C) Such large and arbitrary increases in rent are contrary to the spirit of market competition.
D) Rental rules state that if the same tenant wishes to renew the contract, this must be renewed at the previously existing rent.

Question 7

Cross-cultural studies involving small-scale societies find that there is substantially more variation in ultimatum game offers than is found in industrialized societies. Which of the following statements provides the best possible explanation for this observation?

A) The variation in ultimatum game offers among small-scale societies is correlated with two things: the degree of cooperation in day-to-day interactions and the degree of market integration.
B) Offers tend to vary between 40% and 50% with high degrees of rejection.
C) Roth et al. (1991) report wide variations among the subjects in Jerusalem Tokyo, Pittsburgh and Ljubljana.
D) Rejection rates tend to be much lower across societies when the stakes are higher.

Question 8

In the ultimatum game, if people are purely money maximizers then we would expect:

A) Proposers to make small offers to receivers and for receivers to accept any non-zero offer.
B) Proposers to always offer 50:50 splits of the initial endowment.
C) Proposers to offer hyper-fair offers giving receivers more than 50% of the initial endowment.
D) Proposers to offer more than they would in a dictator game.

Question 9

The impunity game differs from the ultimatum game in the sense that:

A) It removes the punishment option; if a responder rejects the proposer's offer, the proposer still gets to keep his/her share of the endowment.
B) It preserves the punishment option; if a responder rejects the proposer's offer, both the proposer and the responder get zero.
C) It preserves the punishment option; if a responder rejects the proposer's offer, the proposer still gets to keep his/her share of the endowment.
D) It is the same as the dictator game; no matter what the responder does, the proposer and the responder get the allocation suggested by the proposer. endowment.

Question 10

In rejecting small offers in the ultimatum game, the recipients are typically objecting to the unfair intent behind the offer rather than the magnitude of the offer itself. We know this because:

A) The minimum acceptable offer stated by responders are roughly equal in ultimatum games with a second-party human proposer or a third-party human proposer but the minimum acceptable is much lower with a computerized proposer.
B) The minimum acceptable offer stated by responders are roughly equal in ultimatum games with a human proposer or a third-party proposer but the minimum acceptable is much higher with a computerized proposer.
C) The minimum acceptable offer stated by responders when playing against a human proposer is much lower than when playing against a computerized proposer.
D) The minimum acceptable offer stated by responders are roughly equal in ultimatum games with a computerized proposer and a third-party proposer but the minimum acceptable is much lower when playing with a second-party proposer.

Question 11

In the ultimatum game, single-blind protocol means ____ while double-blind protocol means _________:

A) The receiver is not aware of the identity of the proposer; neither the receiver nor the experimenter is aware of the identity of the proposer.
B) Neither the receiver nor the experimenter is aware of the identity of the proposer; the receiver is not aware of the identity of the proposer.
C) Both the receiver and the experimenter are aware of the identity of the proposer; neither the receiver nor the experimenter is aware of the identity of the proposer.
D) That the players are playing the dictator game; that the players are playing the ultimatum game.

Question 12

Which of the following statements accurately sums up the results reported in Sally Blount's ultimatum game study.

A) Average minimum acceptable offers are higher when paired with a computerized proposer than with a human proposer.
B) Average minimum acceptable offers are higher when paired with a human proposer and about the same where the offer is decided by a disinterested third party. Average minimum acceptable offers are lower when paired with computerized proposer.
C) Average minimum acceptable offers are higher when these offers are made by a disinterested third party. Average minimum acceptable offers are lower when paired with computerized proposer and about the same where the offer is decided by a human proposer.
D) Average minimum acceptable offers the same regardless of whether the offer is made by a human proposer, a computerized proposer or a disinterested third party.

Question 13

Which of the following is the correct description of the "impunity game?"

A) It is a paired bargaining game with the proposer offering a split of the original endowment to the responder. The responder can accept this offer or reject. If the responder rejects the offer then both the proposer and the responder get nothing.
B) It is a paired bargaining game with the proposer offering a split of the original endowment to the responder. The responder has no say and has to accept what the proposer has offered.
C) It is a paired bargaining game with the proposer offering a split of the original endowment to the responder. The responder can accept this offer or reject. If the responder rejects the offer then both the proposer and the responder each half of the original endowment.
D) It is a paired bargaining game with the proposer offering a split of the original endowment to the responder. The responder can accept this offer or reject. If the responder rejects the offer then the proposer still gets to keep his/her share while the responder gets nothing.

Question 14

The results from the Bolton and Zwick study suggest that the rejection rates by responders:

A) Are the same for all three games, i.e., the single blind ultimatum games, the double-blind ultimatum game and the impunity game.
B) Are lower in the impunity game compared to the single blind and double-blind ultimatum games.
C) Are higher for the impunity game compared to the single blind ultimatum games, the double-blind ultimatum game and the impunity game.
D) Are higher for the impunity game and the single-blind ultimatum game compared to the single-blind ultimatum game.

Question 15

Which of the following instances of an increase in the price would be considered more acceptable by most people?

A) A price increase in order to exploit the vulnerability of a customer.
B) A price increase to increase the producer's profit.
C) A price increase in order to engage in price discrimination.
D) A price increase in order to cover increased costs.

Question 16

The economic term for the practice of charging different prices to different customers (or groups of customers) depending on how price sensitive they are is referred to as:

A) An ultimatum.
B) Exploitation.
C) Bargaining
D) Price discrimination.

Question 17

"Arbitrage" refers to the practice of:

A) Conducting ultimatum games under a double-blind protocol.
B) Buying a good at a lower price in one location and selling it at a higher price at another location.
C) Buying a good at a higher price in one location and selling it at a lower price at another location.
D) Comparing between the results of ultimatum games conducted either under a double-blind protocol or a single-blind protocol.

Question 18

A key requirement for producers to be able to engage in price discrimination is to:

A) Prevent arbitrage.
B) Raise prices to cover costs.
C) Raise prices to increase profit margins.
D) Charge the same price to different groups of customers with different levels of price sensitivity.

Question 19

The results from Lisa Cameron's study of the ultimatum game in Indonesia suggest:

A) When the stakes are higher, proposers tend to make very small offers to the responders.
B) When the stakes are higher, proposers tend to make more equitable offers to the responders.
C) Proposers offer higher amounts in the dictator game compared to the ultimatum game.
D) Proposers offer higher amounts in the ultimatum game compared to the dictator game.

Question 20

The Roth et al. cross-cultural study reports that modal offers are lower in Tokyo and Jerusalem compared to Pittsburgh and Ljubljana. Roth et al. suggest this is due to the fact that:

A) Participants in Tokyo and Jerusalem are tougher bargainers compared to those in Pittsburgh and Ljubljana.
B) Participants in Tokyo and Jerusalem failed to understand how the ultimatum game works compared to participants in the other locations.
C) The prevailing norms of fairness and what constitutes a fair offer is different in Tokyo and Jerusalem compared to Pittsburgh and Ljubljana.
D) Participants in Pittsburgh and Ljubljana are tougher bargainers compared to those in Tokyo and Jerusalem.

Question 21

Which of the following is an accurate description of the Roth et al. cross-cultural study?

A) Modal offers in Tokyo and Jerusalem are more than 50% and higher than those in Pittsburgh and Ljubljana.
B) Modal offers in Tokyo and Jerusalem are more than 50% but still lower than those in Pittsburgh and Ljubljana.
C) The modal offers are the same and equal to 50% in all four locations.
D) Modal offers in Pittsburgh and Ljubljana are around 50% and are higher than the modal offers in Jerusalem and Tokyo.

Question 22

Consider the following ultimatum game, where the top number at the end of each node refers to the payoff for the proposer and the bottom number refers to the payoff for the responder.
Suppose the proposer has chosen "Bottom". Based on the results of the Bolton and Zwick study, the responder is more likely to choose reject if:

A) P1= $2.00; R1 = $2.00.
B) P1= $2.20; R1 = $1.80.
C) P1= $2.40; R1 = $1.60.
D) P1= $3.80; R1 = $0.20.

Question 23

Consider the following game, where the top number at the end of each node refers to the payoff for the proposer and the bottom number refers to the payoff for the responder.
Suppose this game is set up as the "impunity game" and the Proposer has chosen "Bottom". Based on the results of the Bolton and Zwick study, which of the following statements is correct?

A) The responder is likely to choose "reject" if P1= $2.00; R1 = $2.00.
B) The responder is unlikely to choose "reject" regardless of the values of P1 and R1.
C) The responder will always choose "reject" always regardless of the values of P1 and R1.
D) The responder is likely to choose "reject" if P1= $3.80; R1 = $0.20.

Question 24

Consider the following game, where the top number at the end of each node refers to the payoff for the proposer and the bottom number refers to the payoff for the responder.
If the proposers are afraid that inequitable offers may be rejected then they may be inclined to choose "Top" to start with. When do you think proposers are more likely to choose "Top"?

A) If this is an impunity game and the responders have no right of rejection.
B) If this is a dictator game and the responders have no right of rejection.
C) If P1= $2.20; R1 = $1.80.
D) If P1= $3.80; R1 = $0.20.

Question 25

In making higher than the minimal offer in the ultimatum game, proposers are more concerned with being rejected for making small offers rather than any concerns of being observed by the experimenter. Clearly explain the study that allows us to draw this conclusion. Your answer should be accompanied by one or more suitable diagrams as needed to bolster your arguments.

Question 26

In making higher than the minimal offer in the ultimatum game, proposers are more concerned about the possibility of rejection rather than about being altruistic to the responder. Clearly explain the study that allows us to draw this conclusion.

Question 27

In rejecting small offers in the ultimatum game, the recipients are typically objecting to the unfair intent behind the offer rather than the magnitude of the offer itself. Clearly explain the study that allows us to draw this conclusion.

Question 28

In the context of the ultimatum game, what is meant by "demand withholding"? List and explain at least two factors that affect the extent of such demand withholding.

Question 29

Consider the following two-player game. Player 1 moves first and chooses either Top or Bottom. Player 2 gets to see Player 1's choices and then responds with either Accept or Reject. If Player 1 chooses Top and Player 2 chooses Accept, then Player 1 gets $8 and Player 2 gets $2. If Player 1 chooses Top and Player 2 chooses Reject, then they both get $0. If Player 1 chooses Bottom and Player 2 chooses Accept, then Player 1 gets $A and Player 2 gets $B. If Player 1 chooses Top and Player 2 chooses Reject, then they both get $0. (i) Draw the game tree to depict this game. (ii) How do you think the results will differ if both A=B=$5 as opposed to A=$10 and B=$0. (iii) Suppose A=$10 and B=$1, what would be the outcome if this game is set up as an impunity game rather than an ultimatum game? (iv) Suppose A=B=$5, what would be the outcome of the game if this game is set up as impunity game as opposed to an ultimatum game.

Question 30

Non-experimentalists often argue that the small size of the stakes in economics experiments mean that the results are not generalizable. Discuss one study that addresses the issue of stakes using the ultimatum game and show how the concern about small stakes is most likely exaggerated.

Question 31

Consider the following two vignettes:

Question 32

A landlord owns and rents out a single small house to a tenant who is living on a fixed income. A higher rent would mean the tenant would have to move. Other small rental houses are available. The landlord's costs have increased substantially over the past year and the landlord raises the rent to cover the cost increases when the tenant's lease is due for renewal.

Question 33

A landlord rents out a small house. When the lease is due for renewal, the landlord learns that the tenant has taken a job very close to the house and is therefore unlikely to move. The landlord raises the rent $40 per month more than he was planning to do.
Under which of the two above situations (1) or (2) do you think people will find the rent increase acceptable? Why do you think so?

Question 34

What is the difference between a single-blind and double-blind protocol in the context of an ultimatum game? Why do some people argue that the outcome of proposer offers may be different depending on the nature of the protocol adopted?

Question 35

What does Bradley Ruffle refer to as "demand withholding"? How does the extent of demand withholding depend on the relative magnitudes of buyer and seller surplus? How does it depend on the number of buyers in the market and why?

Question 36

While there is significant debate around the world about the impact of inequality, some evidence suggests that people care more about fairness than about inequality. Discuss with explicit reference to one or more studies why people do not seem as concerned with inequality as we think and why and how people are willing to live with inequal outcomes as long as this is arrived at via fair procedures.