EC305 Study Guide - Midterm Guide: Ultimatum Game, Conjunction Fallacy
Document Summary
The finding that purchases are higher under tax-exclusive pricing than tax-inclusive pricing can be best explained by the conjunction fallacy. Short-answer questions: consider a repeated version of the ultimatum game in which the proposer plays against the same responder for 20 rounds. Below are two claims regarding behavior in this game. Explain whether you think each one is correct and why. The proposer might make relatively generous offers early on in order to build a reputation as someone generous. (2 points) The responder might reject offers below one half early on in order to build a reputation as a tough player for whom fair offers are important. (2 points) The opposite is more likely; namely, proposers might make relatively low offers early on in order to habituate the proposer to smaller amounts: correct. Support your point of view with material learned during the semester. (4 points)
