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September 24, 2003

What is the Ultimatum Game?

Take two people and tell them they have the opportunity to split $10. Furthermore, tell one person that, as first mover, they get to make a one time offer, and tell the other person that, as second mover, they get the opportunity to either accept or reject this offer. If the offer is rejected they both go home with zero. This stylized negotiation was first studied by experimental economists in

Güth, Werner, Rolf Schmittberger, and Bernd Schwarze (1982) “An Experimental Analysis of Ultimatum Bargaining,” Journal of Economic Behavior and Organization, 3:4 (December), 367-388.

and economists got a surprise. Game theory predicts an unequal split favoring the person who gets to make the offer. After all if I offer a ($9, $1) split where you only get $1 you should take it since a dollar is better than nothing, but instead a majority of the offers are to split equally. Not a bad strategy if your partner is willing to reject unequal offers, and sometimes they do, but not all that often in the one-shot case. Can fear of rejection explain the equal split offers? To answer this question

R. Forsythe, J. Horowitz, N.E. Savin and M. Sefton, Fairness in Simple Bargaining Experiments," Games and Economic Behavior, 6, 1994, 347-369.

compare offers in the ultimatum game with offers in a simpler game called the dictator game. In the dictator game, the players who make the offers get to keep their share no matter what. Sure enough they make less equal offers, and keep more of the $10. Interesting, unlike the female capuchins in Sarah Brosnan and Frans de Waal’s study second movers always accepted their unequal monetary shares when it came time to collect in the dictator games, but by then first movers were long gone.

Posted by Kevin McCabe |

Comments

Airtravel

Posted by:travel | February 24, 2007 at 02:54 AM

Hi There is an interesting article in the last issue of the Economist that adds a twist to your article. In the game of Ultimatum, besides playing the game with all male participanta a level of tstosteron were measured and results criss crossed with rejection and level of homrmone, showing that 5 in 7 with highest testosteron have rejected unequal offer, and only 1 in 19 with low level of hormone did reject the offer.
Reiden, Switzerland

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A theory depicted with a great practicle implementation.Realy an ultimatum game it is.

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