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 fair-minded 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

Options a and c apply.

Step-by-step solution

Understanding the Ultimatum Game

The ultimatum game is an economic experiment where a proposer is given a sum of money and must offer a portion to a responder. If the responder accepts the offer, both players keep their respective shares. If the responder rejects it, neither gets anything.

Analyzing Option a

Proposers may offer half of the money out of fear that any smaller or unequal split could be rejected by a responder who values fairness. Hence, the proposer aims to ensure the offer is accepted.

Analyzing Option b

Desiring the responder to reject the offer would imply the proposer wants both parties to end up with nothing, a situation that contradicts the typical objective of maximizing one's own benefit.

Analyzing Option c

Proposers might offer half because they have a strong inherent sense of fairness and wish to split the money equally, reflecting an altruistic or morally driven decision.

Analyzing Option d

Unrestrained greed would typically lead a proposer to offer as little as possible, preserving the largest share for themselves, not an equal split.

Concluding Analysis

Options a and c align with the motivation behind offering half in the ultimatum game, as they reflect a strategy to avoid rejection due to fairness concerns and a natural inclination towards splitting evenly.

Key concepts

Game Theory

Game Theory is the study of strategic decision-making where players' choices must consider the possible actions of others. The Ultimatum Game, a fundamental concept within Game Theory, illustrates the complexities in decision-making strategies. In this game, two players must decide on splitting a resource, typically money. The proposer suggests a division, and the responder has the power to accept or reject. If accepted, the allocation proceeds as suggested; if rejected, both players receive nothing.

The Ultimatum Game becomes a captivating subject for Game Theory as it presents players with a complex psychological and strategic puzzle. The proposer faces the challenge of anticipating the responder's choices, weighing the risks of a rejected offer against potential rewards of acceptance. Similarly, the responder evaluates whether the proposed split respects principles of fairness or warrants rejection. The equilibrium outcome in Game Theory often hinges on an understanding of human behavior, emphasizing fairness over strict rational profit maximization.

Game Theory explores different strategies, such as offering exactly half or slightly more than what may be deemed fair, to ensure acceptance. This exercise encourages students to examine human behavior as a blend of rationality and emotional response, and it highlights the importance of predicting others' decisions within strategic contexts.

Behavioral Economics

Behavioral Economics combines insights from psychology with economic theory to understand decision-making processes. Unlike traditional economic models that assume pure rationality, Behavioral Economics acknowledges that emotions and social norms heavily influence choices. The Ultimatum Game offers a unique window into these dynamics.

Players in the Ultimatum Game often offer equal splits, like half of the available money, due to behavioral inclinations towards fairness rather than self-interest. For the proposer, perceived fairness can be a tactic to ensure that the responder accepts the offer. The responder, on the other hand, might reject an offer they deem too unequal, reflecting their psychological need for fairness and equity. This tendency challenges the simplistic view of humans as purely profit-driven, introducing a nuanced picture of economic actors.

Behavioral Economics uses experiments like the Ultimatum Game to highlight how social, cognitive, and emotional factors intertwine with economic decisions. This field provides a richer understanding of economics, highlighting that real-world decisions often deviate from traditional models. The learnings from such models inform policies and systems that consider human behavior's unpredictability.

Economic Experiments

Economic Experiments are valuable tools in understanding how individuals make decisions within structured environments. These experiments provide evidence by creating controlled settings where variables can be manipulated, and outcomes observed. The Ultimatum Game is a quintessential economic experiment, demonstrating the interaction of decision-making, fairness, and strategy.

In the Ultimatum Game, economic experiments provide real data that challenge traditional economic predictions about rational behavior. Participants, even when aware of the consequences, often behave generously rather than selfishly. This tendency highlights the importance of perception, fairness, and mutual benefit over mere financial gain.

By conducting such experiments, researchers can test hypotheses about human behavior under varying conditions, gaining insights into motivations behind decisions. They measure not only the decisions themselves but also the emotional and psychological reasons behind these choices. Economic experiments, therefore, offer robust insights into how people interact financially and socially, guiding both academic theories and practical applications in devising economic policies and tools.