Efficiency wage simulation

In this simulation, I divide the class into two groups. Last names L-Z are “bosses,” while
names A-K are “workers” To start, I give each boss $12. I will randomly pick one boss
and one worker and pay out cash, so consider your choices carefully. You can make up
to $23 in this game.
This game has two stages, a Boss decision and a Worker decision.
In the first stage, Bosses choose how much to pay their Worker. Pay is either

• “Low pay” which costs the boss $5 or

• “High pay” which costs the boss $10.

In the second phase, workers see their pay and choose “effort.” Effort is measured as
dollars of worker contribution. Whatever “effort” the worker gives, it is worth four times
that much to the boss. The worker can choose effort levels:

• “Low effort,” which costs the worker $0 (and gives the boss zero),
• “Normal effort,” which costs the worker $2 (and is worth $8 to the boss),
• “High effort,” which costs the worker $4 (and is worth $16 to the boss),

So if the boss picks low pay he pays $5, and has $7 left.

• If the worker then picks high effort, the worker has $1 left (=$5 pay - $4 cost of high
effort) while the boss earns $23 (= $7 left after paying salary + $16 resulting from
high effort.)
• If the worker then picks low effort, the worker has $5 left, while the boss earns $7 (=
$7 left after paying salary)

The quiz asks you outcomes with medium effort.

Question 11 pts
Mini-quiz to see if you understand the instructions:
If the boss picks high pay and the worker picks medium effort
Group of answer choices

The worker receives $8 and the boss earns $10

The worker receives $1 and the boss earns $23

The worker receives $3 and the boss earns $18

The worker receives $6 and the boss earns $18

None of the above