15 - Ultimatum game Flashcards
what is the ultimatum game
- 2 players
- T = total sum of money
- proposer and responder
- proposer makes an offer
- responder decides if it wants to accept terms, reject (both take home nothing)
what is the standard solution of ultimatum game
- if players motivated by only own money payoffs
- by backwards induction
- responder will always accept even it is 1p
- proposer will offer the smallest amount possible
- responder will get 1p
- proposer will get pretty much everything
what are the typical findings of ultimatum game
one shot game
- 40% average offer of T
- offers above 50% are rare
- offers of 50% are common
- some offers rejected
- offers less than 20% rejected frequently
what we see happens compared to standard
- proposer makes more nicer proposals
- responder rejects positive offers
why would responders reject money
- not max their own payoff
because of other-regarding preferences
- reciprocity
- aversion to inequality
what is Dufwenberg reciprocity model
- overall utility is a weighted sum of material payoffs and reciprocation payoff
- role of perceived intentions
how does reciprocity play in the ultimatum game
- if low offer is seen as unkind
- responder with strong enough reciprocal preference will reject
- they will gain utility by rejecting
what is Fehr Schmidt preferences
aversion to inequality
- aversion to both directions of inequality - more so when unfavourable
- attitudes are to money outcomes (not perceived intentions like reciprocity)
- money outcomes but not just money to self - matters how much money the other person has
how does aversion to inequality play in the ultimatum game
if is unfavourable inequality averse then will reject low offers
- if they have Fehr Schmidt preferences
responder IC
- point where they are indifferent between 0 money and share of T
- on left = will reject
- on right = will accept
- will defo accept 1/2 = no inequality
proposer IC
- upward sloping below equality line
- will never propose more than 1/2
- will never offer less than s* - will defo be rejected
- the offer depends on slope of proposer IC above the equality line
- shallow slope = offer s*
- steep slope = offer 1/2
how well does FS preferences explain what we see in ultimatum game
- why low offers are rejected
- why 50% is common
- why offers > 50 are rare
- some people offer s*
- the people that are more inequality averse offer 50
2 experiments that change the game by restricting the players
- Forsythe 1994 = restrict responder
- Falk 2003 = restrict proposer
Forsythe Horowitz Savin Sefton (1994)
dictator game
how have they changed the game
- responder has no option but to accept
- no threat of rejection anymore
differences in results between
Forsythe 1994 and ultimatum game
- ultimatum
- big spike at 50% - FS preferences
- dictator
- biggest spike at 0
- 60% do offer something
is giving positive offers in dictator and ultimatum game explained fully by preferences
- dictator giving is not explained by reciprocity - because there is no retailiation from responder
- giving is not fully consistent with FS - would still expect people to give positive sums if they were averse to inequality - IC dont change
what are the implications of the
Forsythe dictator game
- offers in ultimatum game are not driven fully by preferences - could be out of fear of rejection
- but fear of rejection doesnt explain positive offers fully because still some in the ultimatum game
Falk Fehr Fischbacher (2003)
design
restrict the proposer
- 4 games like ultimatum game
- proposer can only choose between 2 offers (20% or one other offer out of 0,20,80,50) depending on each treatment
- responder knows the options that the proposer was choosing between
- responders behaviour for both possible options elicited using strategy method
- each subject plays all 4 treatments
what are the predictions of FFF 2003
standard
reciprocity
FS preferences
standard = 20% offer never be rejected
FS preferences = rejection rate of 20% offers should be the same across all treatments - rejection rate shouldnt depend on the values of the alternative offer
reciprocity = rejection rate of 20% offer may vary across treatments if responders view of proposers intentions depends on alternative offer - changes how kind/unkind you see them
- no rejection when alternative offer is 20 or 0 = kind
FFF findings
which preferenees
- reject game theory prediction - because people do reject 20% offers
- rates of rejection are not all the same - against FS preferences
- more rejection when the alternative offer was 50/50 that wasnt chosen - in line with reciprocity
- still rejection of 20% when it is not seen as unkind - against reciprocity
after looking at the 2 studies
can reciprocity and inequality aversion preferences explain the findings
no
