PUP-3002 Lecture Notes - Lecture 5: Dictator Game, Nash Equilibrium, Adverse Selection
5 Apr 2018
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Player 1 makes a choice on how much to share (if any) and keeps the rest. Player 2 gets no say: they have to accept the offer. The nash equilibrium is (, sh) where player 1 receives and player 2 receives sh. Player 1 should keep all the money as player 2 has no punishment mechanism. No: in real life player 1 is much more generous. Generally, people feel that we should take care of the less fortunate. Take taxes and give to those who need them. Social security: benefits to retired people and those who are unemployed or disabled. Funded by the young for the old and disabled. Tremendous portion of taxes got to social security. Pays 40-50% of income for workers that lose jobs due to no fault of their own. Benefits are generally paid by state governments, funded in large part by state and federal payroll taxes levied against employers.
