Consider an ultimatum game. It is sequential, and there are two players: the proposer and the responder. The proposer is endowed with moneyfor concreteness, say the proposer is given $100. She is then asked to split the money however she wants between herself and the responder (e.g., $50 each or $100 for herself and $0 for the responder). The responderthe second mover in this casecan either accept or reject the offer. If the responder accepts the offer, then the proposed split goes through. However, if the responder rejects the offer, then nobody gets anything (the $100 is taken away).

a. If players were rational, what do you think the outcome of the game will be? (The equilibrium is technically called the "subgame perfect Nash equilibrium" (SPNE), but we can leave that aside for now.)

b. Experimental evidence, however, indicates that this SPNE does not typically occur. Why do you think that is? Would you consider this as evidence that people are not rational?