Question

Many proposers in the ultimatum game offer half to the responder with whom they are paired. This behavior could be motivated by (select as many as might apply): a. Fear that an unequal split might be rejected by a fairminded responder. b. A desire to induce the responder to reject the offer. c. A strong sense of fairness on the part of the proposers. d. Unrestrained greed on the part of the proposers.

Short answer

a and c apply, as the behavior is motivated by fear of rejection and fairness.

Step-by-step solution

Understanding the Ultimatum Game

In the ultimatum game, one player (the proposer) offers a split of a sum of money to another player (the responder). The responder can either accept or reject this offer. If the responder rejects the offer, neither player receives anything. Thus, the proposer typically offers a fair split, such as half of the total, to increase the likelihood of acceptance.

Consideration of Fear and Acceptance

Proposers might offer half because they fear that an unequal and less fair offer might be rejected by the responder. If the responder is fair-minded and considers the offer to be unfair, they might reject it out of principle, even though it results in neither party receiving any money. This fear leads proposers to make fairer offers.

Evaluation of Fairness in Decision Making

A strong sense of fairness may drive proposers to offer an even split naturally, regardless of the responder's reaction. This means that, aside from strategic thinking, proposers might simply value fairness and equality, motivating them to offer half the share.

Rejection of Inducing Rejection

Offering half to induce rejection is counter-intuitive and does not align with rational thinking in the ultimatum game. Offering half increases the likelihood of acceptance, not rejection, because it is fair and equitable.

Assessment of Greedy Motivations

Unrestrained greed would not motivate a proposer to offer half, as greed would lead them to offer as little as possible to the responder in an attempt to keep more for themselves. Therefore, greed would lead to a smaller, not equal, offer.

Key concepts

Game Theory

Game theory is a fascinating field that studies strategic interactions among rational decision-makers. In the ultimatum game, we see a practical application of game theory. The proposer's decision on how much money to offer to the responder is driven by strategic thinking. This involves anticipating the responder's reaction to different offers.

Game theory helps us understand the balance between cooperation and competition. In the ultimatum game, even though each player aims to maximize their financial gain, they must consider the other player's likely response to achieve the best outcome. Such interactions demonstrate the tension between self-interest and the necessity to account for others' preferences to reach equilibrium in decision-making.

Fairness in Economics

Fairness in economics evaluates how resources can be distributed fairly among individuals. In the ultimatum game, fairness is a significant factor influencing the proposer's decision. Offering half of the total amount is often seen as fair and just.

Why do proposers often choose fairness? There are a few reasons:

• Fear of Rejection: If the offer is not fair, the responder might reject it, leading to no gain for both parties.
• Social Appropriateness: Proposers might be influenced by social norms that value equitable distribution.
• Inherent Fairness: Some proposers may have a natural inclination towards fairness, disregarding financial optimization.

Fairness thus becomes a key motivator in economic decisions, affecting both personal outcomes and social expectations.

Behavioral Economics

Behavioral economics combines insights from psychology and traditional economics, revealing why people make the economic decisions they do. In the ultimatum game, behavioral considerations go beyond simple economic calculations.

Several psychological factors affect decisions in the ultimatum game:

• Fair-mindedness: Responders might reject offers they perceive as unfair, even at a cost to themselves.
• Loss Aversion: People may feel the loss of nothing worse than the gain of something, influencing both the proposer’s offer and the responder’s decision.
• Reciprocity and Reputation: Proposers might offer fairer shares to maintain a positive reputation or in anticipation of future interactions.

Behavioral economics allows for a deeper understanding of these non-economic influences and their impact on financial decision-making.

Economic Decision Making

Economic decision-making involves choosing a course of action among various alternatives, often to maximize utility or profit. In the ultimatum game, decision-making is complex, as it is influenced by both rational strategy and emotional considerations.

Key factors that affect decision-making within this game include:

• Risk Assessment: Proposers must decide whether offering less might risk rejection and loss of potential gains.
• Cognitive Bias: Biases, such as overvaluing fairness, might sway the decision towards more equitable offers.
• Social Context: Decisions might be affected by the cultural or social context, with different norms around fairness and reciprocity.

Understanding these elements helps illuminate how people make decisions not just in games but in real-world economic situations, where rationality and behavioral factors often intersect.