In the ultimatum game, there are two players and a sum of money. The first player proposes how to divide up the sum of money, and the second player chooses whether to accept or reject the proposal. If the second player rejects the proposal, neither player receives anything. This game has a unique subgame perfect equilibrium where the first player receives all of the money, or almost all of the money when payoffs are discrete.
Experiments where people have played the ultimatum game have consistently found that the first player will usually offer significantly more money to the other player than the subgame perfect equilibrium, and the second player will be unlikely to accept the offer if they are offered less than 30% of the total amount.[1]
It has been argued by Fehr and Gächter that the ultimatum game provides evidence that economic agents don’t just base their decisions on pure self interest, and reciprocal considerations play an important role in people’s actions. It has been argued by Barrett that the ultimatum game also provides evidence that an international environmental agreement is more likely to be self-reinforcing if it is perceived by its parties to be fair. [2]
[1] Güth et al. (1982), An Experimental Analysis of Ultimatum Bargaining, Journal of Economic Behavior and Organization, 3, pp. 367-388
[2] Fehr and Gächter (2000), Fairness and Retaliation: The Economics of Reciprocity, The Journal of Economic Perspectives, 14 (3), pp. 159-181; Barrett (2003), Environment and Statecraft – The Strategy of Environmental Treaty-Making, pp. 299-301.
May 23, 2009 at 7:15 am
Peter,
You may be interested in suggestions on how to “solve” the tragedy of the commons by using this fairness idea.
If we give people money in inverse proportion to their demands on the commons but require them to invest the money in increasing the commons then we can institutionalise the concept of fairness in our economic systems.
This along with reforming the way we increase our money supply will rapidly lead to solving many of our current “tragedies” such as ghg concentrations.
http://cscoxk.wordpress.com/2008/09/23/financing-renewables-and-solving-the-financial-crisis/
and
http://stableproductivemoney.wordpress.com/2009/05/18/amasset-an-economic-tool-for-managing-economies/
May 25, 2009 at 2:45 am
Thanks to great new leadership in 2009 a social transformation of a hard to imagine kind, a radical transformation not witnessed by anyone now alive, is in the offing. Perhaps powerful human forces of sensibly-directed “intentional will” and emotional contagion, engendered by widespread deliberative discussions within the family of humanity, will lead to a rapid paradigm shift in thought and a more healthy, reality-oriented set of humane {to replace profane} social values. When the new way of thinking about the world we inhabit and better social values are reasonably mobilized and become ubiquitously evident in the self-limiting actions of members of participatory democracies {replacing the conspicuous over-consumption and excessive hoarding activities of the self-absorbed leaders of governing oligarchies of recent years}, I expect the family of humanity will find its way from the selfish thinking, profane values and patently unsustainable lifestyles, such as we see today, to a sustainable and more fully human future world order on this sacred Earth.