The Ultimatum Game - Black and Gold

The Ultimatum Game is probably the most famous economics experiment ever to have graced the face of this planet. First designed by Daniel Kahneman, Jack Knetsch and Richard Thaler in 1986, it has been replicated countless times.  It goes as follows...

You have been put into a pair with someone else, but neither of you will ever learn the identity of the other. You are told that there is £10 to share between you. You are the 'proposer', your partner is the 'responder'. You get to make an offer to your partner about how to split the £10. Thus you could choose to keep for yourself one of the following sums:

£1,  £2,  £3,  £4,  £5,  £6,  £7,  £8,  £9,  £10

The responder has two options: Accept (in which case the money in split as you proposed), and Reject (in which case neither of you gets any money).

As the proposer, how much money would you offer?

Traditional economic theory would suggest that no-one would ever reject a positive offer. There is no benefit to rejecting money, even if the offer seems unfair. Therefore, in the knowledge that people will not reject positive offers, proposers should propose that they keep £9. But study after study has shown that people do not behave in this way.

Typically, responders reject offers that give them less than £3, and proposers rarely offer less than £3 and often offer an even split. Why?

It would seem that fairness is important. People prefer everyone to have the same, even if that is nothing, rather than one person having 90%. It would also seem that when put in the position of proposer people regard fairness as important (or at least they know that the other person regards it as important).

The significance of the Ultimatum Game is that it offers evidence against the assumption that people only care about their own monetary benefit. Factors like fairness are very important.

Given your response above, how important is fairness to you?

And if fairness is important to you, why?


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Black and Gold by Sam Sparro