The Ultimatum Game

The Ultimatum Game (UG) is a test of the self-interest model and has been used to analyze certain aspects of bargaining behavior. It is played a single time in pairs of players who do not know one another. The two players are assigned the role of either proposer or responder. The two divide a sum of money, with the proposer specifying the terms of division. The responder has the option of accepting or declining the proposer’s offer. If the offer is accepted, the sum is divided as proposed; if the offer is rejected, both players get nothing.

Economic models assume that players are rational and selfish in their decision-making, hence it is predicted that proposers will offer the smallest share possible and responders will accept any positive offer because the alternative is a zero payoff (Wallace, Cesarini, Lichtenstein & Johannesson, 2007). Experiments have shown that those who demand more will often get more (Myers, 2008). However, results demonstrate that players rarely employ the rational strategy. Proposers typically make offers of 40 to 50% and responders routinely reject offers under 20% (Jensen, Call & Tomasello, 2007). This leaves both parties with lower outcomes than they would have achieved had they acted in accordance with the self-interest model.

Tripp, Sondak and Bies suggest that people look for more than material rewards in their negotiations (as cited in Pillutla & Murnighan, 1996). People are concerned with the interests of others and are sensitive to norms of cooperation and fairness (Jensen et al., 2007). When faced with an unfair offer, responders experience a conflict between an emotional “reject” decision provoked by the unfairness of the offer and a rational “accept” decision based on the desire to maximize one's gain. The rejections of responders show that anger to unfairness overrides the rational choice of accepting any positive offer. This runs contrary to Miller’s prediction, where when faced with a conflict between a preferred course of action and a less preferred but objectively superior one, people often censor their feelings and choose the latter (2006). Recent research, however, questions whether the irrational behavior of players can be fully explained by a genuine concern for fairness. Pilluta and Murgnighan argue that proposers rarely act out of true concerns for fairness. Instead, they are consistently strategic, making large offers to avoid rejections and to appear fair rather than to be truly fair (1996).

In the version of the game played in precept which served as an opportunity to earn extra credit points, each person was assigned a number. Instead of a one-shot deal, it consisted of two rounds. The sample was split in half so that half of the students made the demands for the first round and the other half accepted or rejected, and the roles were switched the second time round. For each round, each proposer was given a sheet of paper where he/she would identify him/herself by the number assigned and write down the number of points (out of 10) demanded and the rest that was to be offered. The paper was then given to a responder randomly, and he/she would then indicate the acceptance or the rejection of the offer.

The class results were in line with those of the UG. In round 1, the game was played fairly. Most proposers demanded a 7 or below, with a range of 4-10, a mean of 6.22 and a small standard deviation. All offers of 6 or below were accepted and all demands of 10 rejected. In round 2, the range of demands narrowed down to 4-9. The mean and standard deviation were about the same but more proposers moved up the higher end of the demand spectrum, with the majority demanding a 6 or above. This time, responders were more flexible and willing to accept demands between 6 and 8. As predicted by the descriptive model, players engaged in perspective taking. Knowing that there would be two rounds and each person would play both roles caused some students to care for a fair bargaining result. Students adjusted to the game through their understanding of others. Cognizant of the social perception of fairness and aversion to exploitation, students were prompted to play fair by fear of possible rejection. The incidence of more demands on the higher end in the second round could be explained as follows. If a responder was given a more competitive demand the first time, he/she was more likely to restore equity by retaliation and make a higher demand when he/she became a proposer in the second round.

Models based on maximization of financial rewards alone do not provide an adequate explanation