Suppose That an Economics Professor Selects Two Students, Audrey and Michael

Multiple Choice

Suppose that an economics professor selects two students, Audrey and Michael, to participate in a classroom experiment. The professor gives Audrey twenty $1 bills. Audrey must pick an allocation of the twenty $1 bills to offer to Michael. If Michael accepts the allocation, each student keeps his or her portion of the money. If Michael rejects the allocation, the professor keeps the $20, and each student receives nothing. Audrey selects $19 for herself and $1 for Michael. Based on the studies of human decision making, which of the following statements is correct?

A) If Michael accepts the offer, he is behaving rationally.
B) If Michael rejects the offer, he may value fairness more than $1.
C) If Michael rejects the offer, Audrey made a bad choice by trying to keep $19 for herself.
D) Any of the above could be correct.