Ultimatum game

Definition

The ultimatum game is a behavioral economics experiment where two players interact to decide how to divide a sum of money. One player, the proposer, suggests a split, and the other player, the responder, can either accept or reject the offer. If the responder accepts, both players receive their respective amounts; if rejected, both receive nothing. This game reveals insights into fairness, negotiation, and human behavior in economic decision-making.

5 Must Know Facts For Your Next Test

1. In most iterations of the ultimatum game, proposers tend to offer between 40-50% of the total sum, suggesting a strong inclination towards fairness.
2. When responders reject low offers (often below 20%), they do so as a form of punishment towards the proposer, indicating that fairness can override self-interest.
3. The ultimatum game has been used across various cultures, with findings showing that people value fairness similarly regardless of cultural background.
4. The outcomes of the ultimatum game challenge traditional economic theories that assume rational self-interest, revealing deeper motivations behind decision-making.
5. Variations of the ultimatum game have been developed to study factors like anonymity, context, and potential future interactions between players.

Review Questions

• How does the ultimatum game illustrate the conflict between self-interest and fairness in economic decisions?
  • The ultimatum game shows that players often prioritize fairness over pure self-interest. Proposers frequently offer what they perceive as fair splits, even at a cost to themselves. Responders may reject offers that they consider unfair, even if it means losing out on money. This behavior demonstrates that human decision-making is influenced by social norms and emotional responses rather than just economic rationality.
• What role do cultural differences play in the outcomes of the ultimatum game, and what does this suggest about human behavior?
  • Cultural differences can significantly influence how offers are made and accepted in the ultimatum game. Research indicates that while many cultures exhibit a preference for fairness, the specific thresholds for what is considered fair can vary. This suggests that human behavior in economic situations is not solely driven by universal principles but is also shaped by cultural norms and values, reflecting a diverse range of motivations in decision-making processes.
• Evaluate how findings from the ultimatum game have challenged classical economic theories regarding human behavior and decision-making.
  • Findings from the ultimatum game have fundamentally challenged classical economic theories that assume individuals always act rationally to maximize their utility. The tendency for responders to reject low offers demonstrates that people often incorporate notions of fairness and social justice into their decisions. This has led to a broader understanding of economic behavior that includes psychological factors and emotional considerations, reshaping how economists view human motivation and choice in economic contexts.

Related terms

Proposer: The player who makes an offer on how to split a sum of money in the ultimatum game.

Responder: The player who decides whether to accept or reject the offer made by the proposer in the ultimatum game.

Fairness: A concept often explored in behavioral economics that examines how individuals perceive equitable treatment and distribution of resources.