The Ultimatum Game

You’re sitting across from another person who has $10 in their hands. They will give you some and if you accept, you both walk away with the money in your hands. If you don’t, you both get nothing. The person offers you $2, keeping $8 for themselves. What would you do?

Most people in this situation would turn down the $2, leaving both of you with nothing rather than have $2 more than you had before the experiment. This famous experiment has been replicated all over the world with many different variants. It’s called Ultimatum and it shows that humans do not work on a strictly monitary basis as some economists suggest.

If we were perfectly rational actors looking out for nothing but our own good, we would always offer only $1 and on the flip side, always accept as little as $1. After all, $1 is better than nothing. But it turns out that most people offer something closer to an even split (5/5 or 6/4) and that if the offer gets as low as $2 than most will reject it. There is even a variant of this game where the person who makes the offer can NOT be refused. In this case, you might think we would offer $0 since that gives us $10, but they found in most cases people still offer some money to the other person.

We have a sense of comparative justice. If we feel that we are being treated unjustly, we are more likely to want to walk away even if it also hurts our own situation.We are more than strictly analytical economic creatures. There are things more important than money.






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