A sequential economics game where one player proposes how to split a sum of money. If accepted by player two, the sum is divided as proposed. If rejected, both players get nothing.
Key Learning Objectives:
- Backward Induction: Under standard assumptions in any subgame-perfect Nash equilibrium, the Proposer allocates at most 1 (the smallest positive amount) to the responder and the responder accepts all proposals.
- Fairness and Altruism: Preferences for fairness may lead a Responder to reject a proposal she finds unfair, even if it means losing money. Anticipating this, and perhaps also motivated by altruism or fairness, Proposers propose splits more generous than predicted by the subgame-perfect equilibria.
- Main Courses: microeconomics; game theory; managerial economics
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