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In a study conducted at the economic laboratory, Person A is randomly paired with another participant, Person B.
The pairing is anonymous, meaning that neither individual will ever know the identity of the other individual
with whom he or she is paired.
In the experiment, Person A will make a choice, the experimenter will record this choice, and then both
individuals will be informed of the choice and paid money based on the choice made by Person A, as well as
a small participation fee. Suppose that neither individual will receive any other money for participating
in the experiment.
In each pair, Person A will receive 10€, in addition to the participation fee.
Person A will then have the opportunity to give any amount of his or her 10€ to Person B.
Person B gets 0.5€ for each 1€ Person A sends to him. Hence, HALF of the money that Person A sends is lost.
Person A can give any of the 10€, in 1€ increments, to Person B. For instance, Person A may decide to give 0€
to Person B and keep 10€ for him or herself. Or Person A may decide to give 10€ to Person B and keep 0€ for him
or herself. Person A may also choose to give any other amount between 0€ and 10€ to Person B, in 1€ increments.
This choice will determine how much money each will receive, privately and in cash, at the end of the
experiment.
You can find an overview of the possible actions and the corresponding earnings here: