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Instructions

Situation Description

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 and Person B will make a simultaneous choice, the experimenter will record this choice, and then both individuals will be informed of the choice and paid money based on the choices made by Person A and Person B, 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 B will receive 0€. Person A and Person B then take a simultaneous decision.

Person A's decision: Person A can propose any amount of the 10€ to Person B. Person A hence decides how much of the 10€ he wants to propose to Person B. Person A can choose any amount between 0€ and 10€ to Person B, in 1€ increments.

Person B's decision: Person B decides which proposals he wants to accept. The two participants get the stipulated amounts only if Person B accepts the offer. If he rejects the offer, both get 0€. Player B chooses an amount between 0€ and 10€. This amount is the lowest proposal that Person B is ready to accept. All proposals that are equal to or higher than this amount are accepted by Person B. All proposals that are lower than this amount are rejected by Person B.

Since the decisions are taken simultaneously, Person A does not know what the minimal amount of money Person B is willing to take at the point of his decision. Similarly, Person B does not know how much money Person A will actually propose.

For example, Person A could propose 2€ to Person B. Then, if Person B accepts proposals starting from 0€, 1€, or 2€, the offer will be accepted and Person A will obtain 8€ and Person B will obtain 2€. If Person B accepts proposals starting from higher than 2€, the offer will be rejected and Person A and Person B will obtain 0€. Person A could propose 8€ to Person B. Then, if Person B accepts proposals starting from 8€ or below, the offer will be accepted and Person A will obtain 2€ and Person B will obtain 8€. If Person B accepts proposals starting higher than 8€, the offer will be rejected and Person A and Person B will obtain 0€.

Please make sure you understand the situation.

Please evaluate the possible actions of Person A.

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