Consider based on the following game: Two players need to determine how to allocate a total amount of 100 points. The player 1 will propose how to divide the points, and player 2 will decide if she wanted to accept this proposal. If the proposal was accepted, then the endowment will be allocated accordingly. If the proposal was rejected, then both players earn 0 points. The smallest amount of giving is 1 point.

A. assume that player 2 is purely self-interested and rational. What will player 2 do, if player 1 chooses to send 10 points to her?

b. what would self-interested player 1 do knowing player 2 is also self interested?

c. Now, assume that players 1 and 2 have distributional preferences, defined by the following utility functions

given the utility function what will player 1 propose assuming this player is self interested?

Will player 2 accept the proposal?

u1(1,2)=11201+210.70 u2(2,1)=22max{12,0}0.1max{21,0} u1(1,2)=11201+210.70 u2(2,1)=22max{12,0}0.1max{21,0}