Simple Bargaining: Ultimatum and Dictator Games

Question 1

Outline: ultimatum game (UG)

Answer 1

Proposer chooses how to split an amount of money, responder can accept or reject. If rejected, no one gets anything

Question 2

Outline: GT prediction for UG

Answer 2

Proposer wants responder to accept, so must make an offer x>0, optimal to offer £1 or lowest denomination available

Question 3

Outline reality of UG

Answer 3

Low offers rejected by responders (even if >0)

Proposers rarely make low offers, usually $4-5 for a $10 pot

Question 4

Why do actual UG results emerge?

Answer 4

Proposers altruistic or inequality averse?

Proposers forsee responders will be angry abut lowe offers and, backward inducting, make higher offers

Question 5

Outline some experimental results for UG

Answer 5

Modal and median offers 40-50%

Mean offers 30-40%

V few offers <10% or >50%

Question 6

Outline: Dictator game (DG)

Answer 6

Proposer splits money, responder has to accept

Question 7

Outline: GT prediction for DG

Answer 7

Proposer keeps all money to max payoff

Question 8

Outline reality of DG

Answer 8

People still split the money

Question 9

Outline some experimental results for DG

Answer 9

Mean split 80-20 (Forsyth, Horowits, Sarin & Sefton, 1994) - therefore some pure altruism exists