Acta Oeconomica Pragensia 2017, 25(1):64-78 | DOI: 10.18267/j.aop.569

Economic Rationality in the Ultimatum Game

Jan Fiala, Oldřich Starý, Helena Fialová, Adéla Holasová, Martina Fialová
ČVUT, Fakulta elektrotechnická (Jan.fiala@fiala-partners.cz; staryo@fel.cvut.cz); Metropolitní univerzita Praha, katedra mezinárodního obchodu (fialova@fel.cvut.cz); ČVUT, Fakulta elektrotechnická (holasovaadela@gmail.com); Univerzita Karlova, 1. Lékařská fakulta (Martina. Fialova@fnmotol.cz).

Rigorous application of experimental methodology to the interdisciplinary research of economic decision making is the main purpose of our work. In this paper, we introduce the main decision-making theories and outline economic rationality. We explain why we find it useful to discriminate between the "irrational" and "non-rational" components of decision making. We offer an oriented interdisciplinary point of view on economic rationality. In the applied section, we describe the main features of the Ultimatum game and summarize the up-to-date theories explaining the non-rational course of the game. We discuss in detail the reported relations between the nominal value of the stakes and the distribution of the offers and responses. We introduce the blinded, randomized Ultimatum game experiment that we conducted in our laboratory. We stress the importance of anonymity of the study subjects and the difference in salience of a factual reward against a hypothetical reward. We present the results of our study, showing that a duly chosen non-monetary reward, directly inconvertible into money, leads to a different offer distribution in the Ultimatum game without the necessity to invest excessive sums of money in the rewards. We compare our results to research published by other authors. According to our theory, the rational, non-rational and irrational components contribute to the decision making in Ultimatum differently depending on the different reward stakes.

Keywords: ultimatum game, rational decision making, value, expected utility
JEL classification: C7, C9, D8

Published: February 1, 2017  Show citation

ACS AIP APA ASA Harvard Chicago IEEE ISO690 MLA NLM Turabian Vancouver
Fiala, J., Starý, O., Fialová, H., Holasová, A., & Fialová, M. (2017). Economic Rationality in the Ultimatum Game. Acta Oeconomica Pragensia25(1), 64-78. doi: 10.18267/j.aop.569
Download citation

References

  1. ANDERSEN, S., ERTAC, S., GNEEZY, U., HOFFMAN, M. a LIST, J., 2011. Stakes Mater in Ultimatum Games. American Economic Review, 101(7), 3427-3439, https://doi.Org/10.1257/aer.101.7.3427 Go to original source...
  2. ALIEV, R., PEDRYCZ, W., KREINOVICH, V. a HUSEYNOV, O., 2016. The General Theory of Decisions. Information Sciences, 327(C), 125-148, https://doi.org/10.1016/j.ins.2015.07.055 Go to original source...
  3. BAKER, A., GUTH, W., PULL, K. a STADLER, M., 2014. Entitlement and the Efficiency-Equality Trade-off: An Experimental Study. Theory and Decision, 76(2), 225-240, https://doi.org/10.1007/s11238-013-9364-5 Go to original source...
  4. BECHLER, C., GREEN, L. a MYERSON, J., 2015. Proportion Offered in the Dictator and Ultimatum Games Decreases with Amount and Social Distance. Behavioural Processes, 115, 149-155, http://dx.doi.org/10.1016/j.beproc.2015.04.003 Go to original source...
  5. BELL, D., RAIFFA, H. a TVERSKY, A., 1988. Decision Making: Descriptive, Normative, and Prescriptive Interactions. Cambridge: University Press. ISBN 0521368510. Go to original source...
  6. BINSWANGER, H., 1980. Attitudes toward Risk Experimental Measurement in Rural India. American Journal of Agricultural Economics, 62(3), 395-407, https://doi.org/10.2307/1240194 Go to original source...
  7. BOLTON, G. a OCKENFELS, A., 2000. ERC: A Theory of Equity, Reciprocity, and Competition. American Economic Review, 90(1), 166-193, https://doi.org/10.1257/aer.90.T166 Go to original source...
  8. CAMERER, C., 2003. Behavioral Game Theory: Experiments in Strategic Interaction. Princeton, New Jersey: Princeton University Press. ISBN 9780691090399.
  9. CAMERER, C. a HOGARTH, R., 1999. The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework. Journal of Risk and Uncertainty, 19(1), 7-42, https://doi.org/10.1023/A:1007850605129 Go to original source...
  10. CAMERON, L., 1999. Raising the Stakes in the Ultimatum Game: Experimental Evidence from Indonesia. Economic Inquiry, 37(1), s.47-59, https://doi.org/10.1111/j.1465-7295.1999.tb01415.x Go to original source...
  11. CARPENTER, J., VERHOOGEN, E. a BURKS, S., 2005. The Effect of Stakes in Distribution Experiments. Economic Letters, 86(3), 393-398, http://dx.doi.org/10.1016/j.econlet.2004.08.007 Go to original source...
  12. FALK, A., FEHR, E. a FISCHBACHER, U., 2003. On the Nature of Fair Behaviour. Economic Inquiry, 41(1), 20-26, https://doi.org/10.1093/ei/41.T20 Go to original source...
  13. FANTINO, E., GAITAN, S., KENNELLY, A. a STOLARZ-FANTINO, S., 2007. How Reinforcer Type Affects Choice in Economic Games. Behavioural Processes, 75(2), 107-114, https://doi.org/10.1016/j.beproc.2007.02.001 Go to original source...
  14. FEHR, E. a SCHMIDT, K., 1999. A Theory of Fairness, Competition and Cooperation. Quarterly Journal of Economics, 114(3), 817-851, https://doi.org/10.1162/003355399556151 Go to original source...
  15. FEHR, E. a GACHTER, S., 2002. Altruistic Punishment in Humans. Nature, 415, 137-140, https://doi.org/10.1038/415137 Go to original source...
  16. FORSYTHE, R., HOROWITZ, J., SAVIN, N. a SEFTON, M., 1994. Fairness in Simple Bargaining Games. Games and Economic Behavior, 6(3), 347-369, http://dx.doi.org/10.1006/game.1994.1021 Go to original source...
  17. FRANK, R., 2014. Microeconomics and Behavior (9th ed.). McGraw-Hill Education. ISBN 0078021693.
  18. FRANCO-WATKINS, A.-M., EDWARDS, B. a ACUFF, R., 2013. Effort and Fairness in Bargaining Games. Journal of Behavioral Decision Making, 26(1), 79-90, https://doi.org/10.1002/bdm.762 Go to original source...
  19. GACHTER, S. a RIEDL, A., 2005. Moral Property Rights in Bargaining with Infeasible Claims. Management Science, 51(2), 249-263, http://dx.doi.org/10.1287/mnsc.1040.0311 Go to original source...
  20. GUTH, W., SCHMITTBERGER, R. a SCHWARZE, B., 1982. An Experimental Analysis of Ultimatum Bargaining. Journal of Economic Behavior and Organization, 3(4), 367-388, http://dx.doi.org/10.1016/0167-2681(82)90011-7 Go to original source...
  21. GUTH, W. a van DAMME, E., 1998. Information, Strategic Behavior and Fairness in Ultimatum Bargaining: An Experimental Study. Journal of Mathematical Psychology, 42(2-3), 227-247, https://doi.org/10.1006/jmps.1998.1212 Go to original source...
  22. GUTH, W., SCHMIDT, C. a SUTTER, M., 2003. Fairness in the Mail and Opportunism in the Internet: A Newspaper Experiment on UItimatum Bargaining. German Economic Revue, 4(2), 243-265, https://doi.org/10.1111/1468-0475.00081 Go to original source...
  23. GUTH, W., LEVATI, V. a PLONER, M., 2012. An Experimental Study of the Generosity Game. Theory and Decision, 72(1), 51-63, https://doi.org/10.1007/s11238-011-9253-8 Go to original source...
  24. GUTH, W. a KOCHER, M., 2014. More Than Thirty Years of Ultimatum Bargaining Experiments: Motives, Variations, and a Survey of the Recent Literature. Journal of Economic Behavior and Organization, 108(C), 396-409, https://doi.org/10.1016/jjebo.2014.06.006 Go to original source...
  25. HOFFMAN, E., McCABE, K. a SMITH, V., 1996. On Expectations and the Monetary Stakes in Ultimatum Games. International Journal of Game Theory, 25(3), 289-302, https://doi.org/10.1007/BF02425259 Go to original source...
  26. HOLT, C. a LAURY, S., 2002. Risk Aversion and Incentive Effects. American Economic Review, 92(5), 1644-1655, https://doi.org/10.1257/000282802762024700 Go to original source...
  27. KAGEL, J., KIM, C. a MOSER, D., 1996. Fairness in Ultimatum Games with Asymmetric Information and Asymmetric Payoffs. Games and Economic Behavior, 13(1), 100-110, http://dx.doi.org/10.1006/game.1996.0026 Go to original source...
  28. KAHNEMAN, D. a TVERSKY, A., 1979. Prospect Theory: Analysis of Decision under Uncertainty. Econometrica, 47(2), 263-291, https://doi.org/10.2307/1914185 Go to original source...
  29. KAHNEMAN, D., KNETSCH, J. a THALER, R., 1986. Fairness as a Constraint on Profit Seeking: Entitlements in the Market. American Economic Review, 76(4), 728-741, https://doi.org/10.2307/1806070
  30. KELLER, L., 1989. The Role of Generalized Utility Theories in Descriptive, Prescriptive, and Normative Decision Analysis. Information and Decision Technologies, 15(4), 259-271.
  31. LEVINE, D., 1998. Modeling Altruism and Spitefulness in Experiments. Review of Economic Dynamics, 1(3), 593-622, http://dx.doi.org/10.1006/redy.1998.0023 Go to original source...
  32. LUCE, R. a WINTERFELDT, D., 1994. What Common Ground Exists for Descriptive, Prescriptive, and Normative Utility Theories. Management Science, 40(2), 263-279, https://doi.org/10.1287/mnsc.40.2.263 Go to original source...
  33. MANKIW, N. a TAYLOR, M., 2008. Economics. Special edition with the coverage of the world financial crisis. Hampshire: South-Western Cengage Learning. ISBN 9781408021262.
  34. von NEUMANN, J. a MORGENSTERN, O., 2007. Theory of Games and Economic Behavior (60th Anniversary Commemorative edition). Princeton University Press. ISBN 9780691130613. Go to original source...
  35. NOVAKOVA, J. a FLEGR, J., 2013. How Much Is Our Fairness Worth? The Effect of Raising Stakes on Offers by Proposers and Minimum Acceptable Offers in Dictator and Ultimatum Games. PLoS ONE, 8(4), http://dx.doi.org/10.1371/journal.pone.0060966 Go to original source...
  36. OOSTERBEEK, H., SLOOF, R. a van de KUILEN, G., 2004. Cultural Differences in Ultimatum Game Experiments: Evidence from a Meta-Analysis. Experimental Economics, 7(2), 171-188, https://doi.org/10.1023/B:EXEC.0000026978.14316.74 Go to original source...
  37. OSUMI, T. a OHIRA, H., 2010. The Positive Side of Psychopathy: Emotional Detachment in Psychopathy and Rational Decision-Making in the Ultimatum Game. Personality and Individual Differences, 49(5), 451-456, http://dx.doi.org/10.1016/j.paid.2010.04.016 Go to original source...
  38. RABIN, M., 1993. Incorporating Fairness into Game Theory and Economics. American Economic Review, 83(5), 1281-1302, https://doi.org/10.2307/2117561
  39. RAND, D. G., TARNITA, C., OHTSUKI, H. a NOWAK, M., 2013. Evolution of Fairness in the One-Shot Anonymous Ultimatum Game. Proceedings of the National Academy of Science, 110(7), 2581 -2586, https://doi.org/10.1073/pnas.1214167110 Go to original source...
  40. ROTEMBERG, J., 2008. Minimally Acceptable Altruism and the Ultimatum Game. Journal of Economic Behavior and Organization, 66(3-4), 457-476, http://dx.doi.org/10.1016/j.jebo.2006.06.008 Go to original source...
  41. RUSTICHINI, A., 2009. Neuroeconomics: Formal Models of Decision Making and Cognitive Neuroscience. In Glimcher, P., W. et al. Neuroeconomics, Decision Making and the Brain. London: Elsevier / Academic Press, 40-42. ISBN 0123741769.
  42. SLONIM, R. a ROTH, A., 1998. Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic. Econometrica, 66(3), 569-596, https://doi.org/10.2307/2998575 Go to original source...
  43. TOMPKINSON, P. a BETHWAITE, J., 1995. The Ultimatum Game: Raising the Stakes. Journal of Economic Behavior and Organization, 27(3), 439-451, http://dx.doi.org/10.1016/0167-2681(94)00035-D Go to original source...
  44. VORACEK, M., 2007. Something Old, Something New, Something Borrowed and Something Blue: National IQ and the Integration of Cognitive-Ability Research. European Journal of Personality, 21(5), 757-759, https://doi.org/10.1002/per.648 Go to original source...
  45. WANG, L., YE, S., JONES, M., YE, Y., WANG, M. a XIE, N., 2015. The Evolutionary Analysis of the Ultimatum Game Based on the Net-Profit Decision. Physica A: Statistical Mechanics and Its Applications, 430, 32-38, https://doi.org/10.1016Zj.physa.2015.02.074 Go to original source...

This is an open access article distributed under the terms of the Creative Commons Attribution 4.0 International License (CC BY 4.0), which permits use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.