Ultimatum game

Definition

The ultimatum game is a standard economic experiment that explores how people make decisions about fairness and negotiation. In this game, one player proposes a division of a sum of money, and the second player can either accept the offer or reject it, leading to both players receiving nothing if rejected. This setup highlights aspects of reciprocity, fairness, psychological motivations, and behavioral strategies in economic interactions.

5 Must Know Facts For Your Next Test

1. In the ultimatum game, offers that are perceived as unfair (typically less than 20-30% of the total) are often rejected, even at a cost to the rejecting player.
2. The game reveals that humans value fairness and are willing to sacrifice personal gain to punish what they perceive as unfair behavior.
3. Cultural differences significantly impact how players respond to offers, with some cultures showing higher tolerance for unequal divisions.
4. The ultimatum game has been used to study various psychological concepts, including altruism, anger, and social norms.
5. Neuroimaging studies show that areas of the brain associated with emotions and decision-making are activated during the ultimatum game, indicating its complexity beyond simple economic reasoning.

Review Questions

• How does the ultimatum game illustrate concepts of reciprocity and fairness in economic interactions?
  • The ultimatum game clearly demonstrates reciprocity by showing how individuals respond to perceived fairness in offers. When one player proposes a division of resources, the second player evaluates it based not just on personal gain but also on fairness principles. If an offer is seen as unfair, the second player may reject it out of a desire to enforce fairness norms, illustrating how reciprocal expectations shape economic behavior.
• In what ways do psychological factors influence decision-making in the ultimatum game compared to traditional economic models?
  • Psychological factors like emotions, social norms, and perceptions of fairness play a significant role in decision-making during the ultimatum game. Unlike traditional economic models that assume rational self-interest, players often act based on feelings of injustice or altruism. This leads to behavior such as rejecting low offers despite personal loss, emphasizing that real-world decisions are often driven by psychological motivations rather than pure financial logic.
• Evaluate the implications of findings from neuroimaging studies related to the ultimatum game for our understanding of human economic behavior.
  • Neuroimaging studies related to the ultimatum game reveal that decision-making is influenced by both cognitive and emotional processes. Areas of the brain linked to emotional responses are activated when players encounter unfair offers, suggesting that our brains are wired to react not just logically but also emotionally in economic situations. This challenges traditional economic theories that view humans as purely rational actors and highlights the importance of understanding psychological dynamics when analyzing human economic behavior.

Related terms

Fairness: A concept that involves the perception of equitable treatment and outcomes among individuals in economic transactions.

Negotiation:

The process by which two or more parties discuss and come to an agreement on shared interests or resolve differences.

Game Theory:

A mathematical framework for modeling scenarios in which conflicts of interest exist among decision-makers.