L3: UGs

Question 1

What are social preferences?

Answer 1

How people rank different allocations to themselves and others

Question 2

Examples of social preference types? Examples where they may affect life?

Answer 2

Altruism, fairness, inequity aversion, reciprocity (ie. exchange for mutual benefit)

Charity giving, volunteering, tipping etc.

Question 3

What is an ultimatum offer and when does it often occur?

Answer 3

‘Take it or leave it’ type offer, often occurs in bargaining

Question 4

Problem with rejecting an ultimatum offer?

Answer 4

Often may result in substantial financial losses for both parties involved

Question 5

Explain how the game works in Güth, Schmittberger and Schwarze (JEBO, 1982)?

Answer 5

1) Proposer announces a split of a fixed amount of money, S, to the responder
2) Responder can accept the offer, x, or reject it

If they reject, both get zero, if they accept P gets S and R gets S-x

Question 6

What does Güth, Schmittberger and Schwarze’s Game measure? (developed)

Answer 6

Reciprocity: it measures if the responder will negatively reciprocate, ie. punish the proposer if they are unfair

Therefore it can compare at what level of x the responder will get more utility of out rejecting and punishing the proposer than accepting x

Also measures how much proposers are willing to give

Question 7

What are the two stylised findings in Güth, Schmittberger and Schwarze (JEBO, 1982)?

Answer 7

–Responders reject offers less than 20% of S.

–Proposers offer between 30% and 50% of S.

Question 8

Why it is theorised that responders sometimes reject offers above 0? What is the implication of this?

Answer 8

It is not that they don’t understand the game, but that they want to indicate to the proposer they feel it is an unfair offer

Implication: Proposers reluctant to make ‘unfair’ offer

Question 9

What was Blount’s (1995) research question?

Answer 9

Why did responders turn down the offer? Is it because:
a) the offer is deemed ‘unfair’ and against social norms
or b) are they dissatisfied with the outcome of the bargaining process because it actually leaves them RELATIVELY worse off than before

Question 10

What were the three treatment conditions Blount (1995) used? What did each participant have to do prior to the game?

Answer 10

1) Standard UG: roles of R&P are randomly assigned, Ps offer and Rs Accept/reject
2) Third party treatment: same as above, but a third, disinterested party determines allocations
3) Chance treatment: same as 1, but S is determined by the spin of a roulette wheel

Prior to each game: states minimum amount would be willing to accept if assigned the role of R

Question 11

In Blount (1995) how does stating the minimum amount would be willing to accept if assigned the role of R help?

Answer 11

If only care about relative standing then minimum acceptable amounts would be constant across treatments

If care about INTENTIONALITY of act, would expect a difference in the value of R across treatments

Question 12

What were the minimum avg. accepted amounts in games 1, 2 and 3?

Answer 12

1) $2.91
2) $2.08
3) $1.20

(out of $10)

Question 13

Two main conclusions of Blount (1995)?

Answer 13

1) People care a lot less about fairness when allocation done by chance and not by another person
2) People much less willing to accept large disparities when self-interested proposer decided allocation

Question 14

What does Falk, Fehr and Fischbacher (Economic Inquiry, 2003) do?

Answer 14

Provides further evidence that the intentions matter

Question 15

What do Falk, Fehr and Fischbacher (Economic Inquiry, 2003) mean by reciprocal behaviour?

Answer 15

In response to an act of person A that is favourable/harmful to person B, person B will be willing to take actions that are more costly to increase/decrease A’s material payoff

Question 16

Describe the game used in Falk, Fehr and Fischbacher (Economic Inquiry, 2003)?

Answer 16

Classic UG with 10 points to be split
Proposers are restricted to one of two choices:
1) 5,5 vs 8,2
2) 10,0 vs 8,2
3) 2,8 vs 8,2

Question 17

What were the 3 main hypotheses behind Falk, Fehr and Fischbacher (Economic Inquiry, 2003)?

Answer 17

1) If R’s only concerned with own payoff will never reject the 8,2 (even tho only get 2 points)
2) Intuitively, we would expect that the rejection rate of the 8/2 offer in the “5/5 game” is higher than in the “2/8 game”. Offering 8/2 in the “10/0 game” may even be perceived as a “fair” action so that the rejection rate of 8/2 is likely to be the lowest in this game.
(see slide 19)

Question 18

3 results from Falk, Fehr and Fischbacher (Economic Inquiry, 2003)?

Answer 18

‘5,5’ game: 44.4% rejected
‘2,8’ game: 27% rejected
‘10,0’ game 9% rejected (see notes)

Question 19

Explain the main conclusion of Falk, Fehr and Fischbacher (Economic Inquiry, 2003)? (developed)

Answer 19

Acceptance rates of offers is dependent on both material payoff and set of offers available to proposer.

Therefore, people have preferences over allocations but also value the fairness intentions behind actions

Question 20

What did Cameron (1999) investigate, and how?

Answer 20

Whether the behaviour behind UGs varies with higher stakes

Conducted experiment in Indonesia with 5000, 40,000 and 200,000 (3x monthly exp. of participants) Ind. rupees

Question 21

What was the results regarding the amount offered in Cameron (1999)? (mode and avg)

Answer 21

Roughly 40% each time avg

Modal 50% every time

Question 22

What were the acceptance rates in Cameron (1999)?

Answer 22

5,000 - 69%
40,000 - 91%
200,000 - 90%

Question 23

What is the main conclusion from Cameron (1999)?

Answer 23

Proposer behaviour invariant to stake changes (no movement towards the NE)

Question 24

What is the structure of a dictator game?

Answer 24

UG except the responder has no power to reject the offer

Question 25

What does Forsythe et al. (1994) hope to answer by comparing the UG and DG?

Answer 25

Why are proposers motivated to offer a substantial part of the pie in UG?
Is it due to fear of rejection, or due to desire to share?

Question 26

What did Forsythe et al. (1994) hypothesise? How do they test this?

Answer 26

That the proposer should take all money and give nothing to the responder

If amounts in UG and DG are similar then know is a desire to share, if not similar (ie. UG>DG) know it is due to fear of punishment

Question 27

What did Forsythe et al. (1994) find?

Answer 27

1) Proposers typically give away 10-25% of the initial pie in DG, therefore much less than in the UG
2) Results imply both Ps and Rs exhibit and understanding of fair and unfair and respond accordingly (see end of L3 notes)