Exploring Ultimatum Game. On the Irrational Nature of Human Decision-Making


Essay, 2016

11 Pages, Grade: 1.7


Excerpt

Table of content

Abstract

1. Introduction

2. Literature review
2.1 Origin and rules of Ultimatum Game
2.2 Fairness
2.3 Cultural difference
2.4 Time effect
2.5 Gender and attractiveness
2.6 Mood

3. Discussion

4. Conclusion

References

Abstract

Experimental economics reports evidence of human irrationality, debates on which are of high relevance nowadays. Results of many experiments, particularly games, differ from those expected by neoclassical theory. Human behavior often goes beyond rational choice, prioritizing feelings and beliefs. Researches define many factors that influence outcomes of such choice. Present paper by dint of literature review focuses on ultimatum game in order to understand what factors influence players while making decisions and how they affect outcomes. Moreover, the paper aims to gather different findings together in order to have a full picture of factors discovered to date. Thus, feeling of justice and fairness, cultural background, time, gender, attractiveness and even mood affect the outcomes of ultimatum game.

Keywords: experimental economics, ultimatum game, irrational factors.

July 15, 2016

1. Introduction

More than 30 years people play ultimatum game by means of economic experiments. Since prehistoric times they play the game at all. Recent experiments go even further and show similar preferences between humans and chimpanzees playing the game (Proctor et al., 2013). Although, the rules are clear and sensible actions are supposed to be always the same, decisions players make and outcomes of the game differ. Apparently, people have other priorities than self-centered interests or profit maximization intentions when other factors come to front. Experimental economics try to shed light on the phenomena. Results demonstrate deviation from the predictions of game theory, and these results are very robust (Henrich, 2000, p.973-974). Games address such issues as cooperation, altruism, defection, trust, free-rider problem, differences from expectations of neoclassical economics, different types of social preferences, and strategies of coping with social dilemmas. In particular, researches keep conducting different kinds of studies in order to find out what exact factors influence decision-making process of human beings and how they affect its outcomes. However, normally studies examine only one kind of issue or influencer, excluding other possible options from the picture. Therefore, the purpose of current paper is by literature review understand the nature of ultimatum game, as well as bring together factors that influence decision-making process and outcomes of the game.

Further, the paper is structured as follows. Definitions, origin of ultimatum game and main findings are focused in Section 2. Discussion of the subject occurs in Section 3. Finally, Section 4 presents overall conclusions.

2. Literature review

2.1 Origin and rules of Ultimatum Game

Ultimatum game among other experimental situations within a frame of game theory (e.g. dictator’s game, prisoner´s dilemma, public good game, beauty contest, business entry game etc.) represents ‘games against others’ (Gintis, 2000). Interpreting results of numerous experiments researchers concluded that these games are played not by homo economicus, but rather by homo reciprocator, who is “neither the selfless altruist of utopian theory, nor the selfish hedonist of neoclassical economics” (Gintis, 2000, p. 316). Homo reciprocators tend to include in their interaction such additional features as cooperation and response to cooperative behaviour, intention to punish non-cooperativeness even at a personal cost and defection.

To play ultimatum game the following rules should be considered. Two players are involved in the game. First player, the proposer, receives certain amount of money and a task to split it with the second player, the responder, who can either accept or reject the offer. In case of acceptance, both players keep the money according to split made. In case of rejection, nobody receives anything. According to neoclassical theory, the respondent should accept any offer, as even minimum amount of money is more than zero. Logically, the proposer should offer minimum on order to maximize own prosperity. In reality, players behave differently. Research shows that proposers tend to share up to 50% of total amount, while responders often reject sums that are below 30% (Güth and Tietz, 1990; Roth et al., 1991; Camerer and Thaler, 1995 as cited in Gintis, 2000, p. 316). It is argued that people make these decisions under influence of different irrational factors, social motives, beliefs, feelings, and heuristics. Conditions of conducting experiments also matter. First, ultimatum game was designed in 1982 by Güth, Schmittberger and Schwarze, since when various experimental settings were further constructed. Thus, in experiments with group behaviour studies discovered groups being more rational players than individuals are (Bornstein & Yaniv, 1998). Many studies also show difference between one-shot games comparing with situations when the game has more rounds. Present paper focuses further on irrational factors, influencing human’s decisions.

2.2 Fairness

On focus of experiments with ultimatum game is a question of fairness. Interpersonal conflict between self-interest and feeling of justice, constructing social decisions, had been discussed since ever. Nevertheless, the researches still find new evidence and explanations to this phenomena.

Fairness was discovered as an influencing motive yet in the first ultimatum game (Güth et al., 1982). The term comprises such interconnected preferences like altruism, reciprocity, revenge etc. (Dickinson, 2002, p. 138). Concern with fairness is discussed to be a universal human characteristic, which proves evolutionary evidence of importance of this feeling for human adaptation (Bolton et. al., 1998; Camerer & Thaler, 1995; Forgas et al., 2008, as cited in Forgas & Tan, 2013).

Some researches based possible explanation on theory of social comparison (Bolton, 1991); others developed this idea by adding consideration of intentions of an opponent player bringing “positive altruism (helping friends through mechanisms like gift exchange and trust) and negative envy (punishing enemies at a cost to oneself)” (Rabin, 1993 as cited in Camerer & Thaler, 1995, p.215). Models of learning and evolution, unlikely above-described, suggest that players do not have concerns about other’s gain, they simple do not care, but they learn from each other’s actions. Thus, proposers start to make higher stakes as they receive rejections of low ones. Responders in their turn learn to accept low offers, although slow (Binmore and Samuelson, 1993 as cites in Camerer & Thaler, 1995, p. 215). Of course, these theories presume more complicated experimental settings; learning in one-shot games is not possible.

Classical outcomes of ultimatum game were reported by the study of Dickinson (2002), which aimed to use experiential learning to raise an idea of fairness role in economic behavior. Besides usual settings for one-shot ultimatum game he questioned how players perceived offers to be fair or unfair. The outcomes showed that people took it differently, although money was never only one item of importance in preferences. In general, he received most common result – responders more often rejected low offers and behave accordingly with fairness hypothesis. That is, a prediction that they reject offers considered as unfair, willing to punish proposers, and respectively accept fair ones. It is important to mention that usually players are not aware of stake’s value for each other. Other studies found that it is enough to have just an impression of fairness, still supporting the weight of self-interested aspect in economic decisions (Camerer & Thaler, 1995, p.212).

The feeling of what is fair can differ between cultures, therefore a certain culture’s degree of cooperation, sharing, and punishment might influence outcomes of ultimatum game.

2.3 Cultural difference

Studies discovered patterns in ultimatum game outcomes depending on cultural background of players. Thus, people from Western cultures typically tend to split money equally (offering around 50%), even in anonymous one-shot games that do not create possibilities for future interaction (Proctor et al., 2013, p. 2070). One of the possible explanations of such situation could be seen from emotional perspective: people are afraid to hurt another being unfair (Henrich et al., 2001, p.77).

This direction of the research is quite popular, although controversial. As usually students are the main participants of experiments, it might be difficult to study cultural patterns in such limited conditions. Therefore, researches have to organize big and apparently expensive cross-cultural studies throughout the whole world. The study of Roth, Prasnikar, Zamir, and Okuno-Fujiwara (1991), focused on four locations: Jerusalem, Ljubljana (in Slovenia), Pittsburgh and Tokyo, reported similarity between cultures - in all these countries, proposers offered splits in the range of 40 to 50 percent.

Henrich et al. (2001), on the other hand, defined certain differences in experiment with 15 small-scale societies from 12 countries on five continents. Recruitment tried to cover as much differences in the cultures and economic conditions as possible. As a result, researchers found cultural variability that was not detected earlier. Speaking of general findings, the study confirmed not purely rational behaviour of the players. Average minimal proposals were around 25% of the stake size. Mean maximum was 58%. There were also groups in between. Results illustrated wide variety in rejections as well. Thus, some societies rejected minimal amount of offers despite the unfairness. Others rejected also hyper-fair (above 50%) offers. These findings could be explained with difference in social institutions and cultural fairness norms. For example, accepting too valuable gifts in some cultures is not welcomed because of possible future obligations that are supposed to be given in return. Researchers explained results also with the degree of market integration in particular culture. Willingness to cooperate were higher in societies with higher level of market development.

[...]

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Details

Title
Exploring Ultimatum Game. On the Irrational Nature of Human Decision-Making
College
Rhine-Waal University of Applied Sciences  (Communication and Environment)
Grade
1.7
Author
Year
2016
Pages
11
Catalog Number
V463247
ISBN (eBook)
9783668922174
ISBN (Book)
9783668922181
Language
English
Tags
experimental economics, ultimatum game, irrational factors
Quote paper
Ekaterina Valeeva (Author), 2016, Exploring Ultimatum Game. On the Irrational Nature of Human Decision-Making, Munich, GRIN Verlag, https://www.grin.com/document/463247

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