Friday, August 22, 2003

The Ultimatum Game

This is the ultimatum game. I have $10. I offer to share that money with you, split however I decide. Once I offer you your share (say, $4), you can decide to accept the offer or reject it. If you accept it, then you get your share and I keep mine. The game ends. If you reject it, however, we both lose all the money and get nothing.

There are variants for things like multiple rounds, but let's keep it simple. Rational actor theory from economics would tell us that the best strategy is to accept whatever you're offered. After all, it's better than nothing. If I offer you $1 and keep $9, your choice is a) $1 or b) $0. Obvious. What happens when people are actually tested, however (even in cirumstances where they are assured there will be no second round with the same player and thus no chance for retribution or learning), is that people disproportionately reject "unfair" offers. That this is a shock to economists tells us something about economists. What's interesting about this study is that MRI images of the brain taken during the study showed that the portion of the brain responsible for emotion triggered during rejection of unfair offers. This did not happen, and rejection took place less often, when the test subject was playing a computer.