The Ultimatum Game

How many of these could you win?

There are two basic motivators for humans. These are fear of loss and hope of gain. This dynamic animates every choice we make. There is overlap. There is some vicissitude from one decision to the next, but most people will generally align themselves into one camp or the other over their lifetimes. ”Fear of gain” and ”hope of loss” do not exist as motivators, but the way people perceive gain and loss, are relative. The concept of value comes into play. And human interaction, with its perceived value, has an impact. The two basic motivators then, nudge people toward what they value.

Interesting studies show that in general, persons place a higher value on things they possess or think they are owed, than they value the very same things if they were trying to obtain them. Your used car, or your house is worth more to you as the owner/seller than the same car or house would be if you were trying to buy them.

A study on the psychology of economics (Neuroeconomics) called the Ultimatum game presents some interesting findings. First developed in 1982, it has been repeated many times, across many different cultures and countries, and with many variations. There is an abundance of information online if you care to indulge yourself further.

The typical format for the basic version of the Ultimatum game groups participants into pairs; a proposer, and a responder. They are endowed with a sum of money. Both the proposer and the responder know the amount of money being gifted. The proposer is told to make a single, one-time proposal on a split of the money between the participants. If the proposal is accepted, the pair will each receive the amount of the proposed split. If the proposal is rejected, they each receive nothing.

What is being studied is whether or not the participants will make rational decisions enabling them to agree on a proposed ratio and pocket their cut of the provided money. If not, what other considerations are at work?

Example: Al and Barbara are given $10 in ones to split between themselves. Al has to make a proposed split that Barbara will accept, otherwise, neither of them takes home any of the free money. Al can make only one offer. Barbara knows there are ten dollars on the table. What does Al propose? What do you propose if you are Al? What are you willing to accept if you’re…