Question

The show the Bachelor Pad ran for three seasons from 2010 through 2012. On the final epsiode of each season, each member of the last couple standing call them players 1 and 2 had an important decision: Keep or Share. In particular, the winning couple had the opportunity to share a $250,000 prize. If both players select Share, they take home a $125,000 prize. If one player chooses Keep and the other chooses Share, the keeper gets all $250,000. But choosing keep is not without risk, if both players choose Keep, they both get nothing. These payoffs are in the table below. Player one's move corresponds to rows and player two's move is marked by columns. Payos are listed as (u1, u2) where u1 is player 1's payo and u2 is player 2's payoff.

p1/p2	share	keep
share	125000,125000	0,250000
keep	250000,0	0,0

1.a If the other player chooses Share, what should the other player choose to maximize his or her payo? (2 points)

1.b If the other player chooses Keep, what should the other player choose to maximize his or her payo? (2 points)

1.c What do the answers to parts 1.a and 1.b imply about the equilibrium of the game? Is this a good or a bad outcome? (2 points)

1.d In class, we showed the pattern of outcomes in the Ultimatum Game is consistent with players' having inequity aversion. Another way to model altruistic preferences is for a player to directly value the other player's preferences. For example, if player i's altruism level is α, player i's (i.e. either 1 or 2) preferences are given by: ui(xi , xj ) = xi + αxj . How altruistic do players need to be to change the equilibrium of the game? Is this plausible? (4 points)

1.e In the rst three seasons of the Bachelor Pad, players chose (Share,Share), (Share,Share), and in the shocking nale of season 3, (Share,Keep). Comment on what you think this teaches us about altruism? (2.5 points)

Answer 1