Ultimatum Game - Explanations

Explanations

The highly mixed results (along with similar results in the Dictator game) have been taken to be both evidence for and against the so-called "Homo economicus" assumptions of rational, utility-maximizing, individual decisions. Since an individual who rejects a positive offer is choosing to get nothing rather than something, that individual must not be acting solely to maximize his economic gain, unless one incorporates economic applications of social, psychological, and methodological factors (such as the observer effect). Several attempts to explain this behavior are available. Some authors suggest that individuals are maximizing their expected utility, but money does not translate directly into expected utility. Perhaps individuals get some psychological benefit from engaging in punishment or receive some psychological harm from accepting a low offer. It could also be the case that the second player, by having the power to reject the offer, uses such power as leverage against the first player, thus motivating him to be fair.

The classical explanation of the ultimatum game as a well-formed experiment approximating general behaviour often leads to a conclusion that the rational behavior in assumption is accurate to a degree, but must encompass additional vectors of decision making. However, several competing models suggest ways to bring the cultural preferences of the players within the optimized utility function of the players in such a way as to preserve the utility maximizing agent as a feature of microeconomics. For example, researchers have found that Mongolian proposers tend to offer even splits despite knowing that very unequal splits are almost always accepted. Similar results from other small-scale societies players have led some researchers to conclude that "reputation" is seen as more important than any economic reward. Others have proposed the social status of the responder may be part of the payoff. Another way of integrating the conclusion with utility maximization is some form of inequity aversion model (preference for fairness). Even in anonymous one-shot settings, the economic-theory suggested outcome of minimum money transfer and acceptance is rejected by over 80% of the players.

An explanation which was originally quite popular was the "learning" model, in which it was hypothesized that proposers’ offers would decay towards the sub game perfect NE (almost zero) as they mastered the strategy of the game. (This decay tends to be seen in other iterated games). However, this explanation (bounded rationality) is less commonly offered now, in light of empirical evidence against it.

It has been hypothesised (e.g. by James Surowiecki) that very unequal allocations are rejected only because the absolute amount of the offer is low. The concept here is that if the amount to be split were ten million dollars a 90:10 split would probably be accepted rather than spurning a million dollar offer. Essentially, this explanation says that the absolute amount of the endowment is not significant enough to produce strategically optimal behaviour. However, many experiments have been performed where the amount offered was substantial: studies by Cameron and Hoffman et al. have found that the higher the stakes are the closer offers approach an even split, even in a 100 USD game played in Indonesia, where average per-capita income for all of 1995 was 670 USD. Rejections are reportedly independent of the stakes at this level, with 30 USD offers being turned down in Indonesia, as in the United States, even though this equates to two week's wages in Indonesia.