Pat and Joe are playing a game The rules of the game are simple Pat is given $100 He can either give it to Joe or keep it for himself

Pat and Joe are playing a game The rules of the game are simple Pat is given $100 He can either give it to Joe or keep it for himself

 

Pat and Joe are playing a game. The rules of the game are simple. Pat is given $100. He can either give it to Joe or keep it for himself. If he keeps it for himself, $50 will be taken back and the remaining will be split between them. If he gives it to Joe, Joe can either divide it into two equal parts or keep it for himself. If he divides it into two equal parts, each of them will get $50. If he does not split the money, he will get the entire amount.

 

21) Refer to the scenario above. Which of the following is likely to be true in this case?

A) A unique Nash equilibrium will occur.

B) A socially inefficient equilibrium will occur.

C) Multiple equilibria will occur.

D) A dominant strategy equilibrium will occur.

22) Refer to the scenario above. Which of the following is likely to be true if Joe is known to be trustworthy?

A) Multiple equilibria will occur.

B) A Nash equilibrium will occur.

C) A socially inefficient equilibrium will occur.

D) A dominant strategy equilibrium will occur.

23) Refer to the scenario above. Suppose Pat can impose a fine of $70 if Joe chooses to keep the money and the cost of imposing such a fine to Pat is $10. Which of the following is likely to happen if Pat is known to be vengeful?

A) Joe will choose to split the money into two parts if Pat gives it to him.

B) Joe will choose to keep the entire money with himself if Pat gives it to him.

C) Pat will not give the money to Joe.

D) An unique equilibrium will not occur.

24) Why is the equilibrium in a trust game socially inefficient?

25) Under what circumstances will the equilibrium in a trust game be efficient?