Ultimatum Game

[coesillian 0]

Here is show the game works.A sum of mobney X is to be divided anonymously. The first player proposes how to divide a sum of money with the second party. If the second player rejects this division, neither gets anything. If the second accepts, the first gets her demand and the second gets the rest. There has been plenty of research done on this and the results are very interesting. From us degenerate gamblers POV I would suspect offers to be low, because the second player only has the option to take money or not. However if the offer is too low the second player can feel cheated and leave you with nothing. I would never expect offers to be higher than 50/50. The value X is important, 1% of a million is 10K and hard to reject, but 1% of a hundred is pretty insulting and I would reject it. lets call X 100$ for now. How much do you offer?

[Yoda 1]

I like pizza?

[eYank 0]

id say like give him 55 keep 45?

[zimmer4141 0]

Give him 25, keep 75.

[LongLiveYorke 38]

I don't get it. Why is this obviously not 99-1?

[coesillian 0]

I don't get it. Why is this obviously not 99-1?

you don't seem like the gambler type in this case. Would you really be content in giving 99$ away to insure you get 1. Wouldn't offering 60/40 achieve the same goal.

[Jeepster80125 0]

I like lesbians?

FYP.

[Dogpatch 2]

60/40. Any less and you get turned down.That's keep 60, offer 40 BTW.

[Jeepster80125 0]

The standard tool for analysing this game is Game Theory.-picture not shown-Each outcome is awarded a score, called a payoff, (A,B) where the first number reflects the player A's winnings, and the second player B's winnings. Once all the possible game outcomes have been evaluated, the next step is to work up the tree from the bottom. For example, look in detail at the (8,2) branch.Person B has a choice between a payoff of (8,2) or (0,0). Saying 'Yes' gives him 2 coins (in which case A gets 8), whereas saying 'No' means neither player gets any.Game theory assumes (as do most economic models) that individuals are self-maximising - that irrespective of all else, they seek the most for themselves.In this example, since 2>0, the theory predicts that player B would say 'Yes', resulting in a payoff of (8,2). Since player A can see this, he is able to simplify the game tree by ignoring branches that the theory predicts that player B will never play.-picture not shown-Also a self-maximiser, player A now chooses which of the available outcomes is best for him; he places 9 coins in font of him, and just a single coin in front of player B:-picture not shown-This is a fine theory, but unfortunately it's not how real people play the game.How do people actually play?Player A usually splits the coins nearly evenly, averaging around 6:4, and player B usually accepts this offer. Interestingly, autistic players are the only ones who consistently split the coins 9:1, as game theory predicts.Player B usually accepts the allocation when the coins are fairly evenly split. However, with unfair allocations, especially when offered only a single coin, very few people make the 'logical' decision to accept the offer.Why don't people actually play as the theory predicts?The answer to this question should be obvious to anyone who has not been trained in game theory. If player B accepts a very unequal offer, this would mean rewarding player A's greed, so instead of cooperating he is prepared to suffer a loss himself. Basically, people like things to be fair, and if they don't perceive what is going on as being fair, they are prepared to suffer in order to punish those they see as the source of the unfairness. In a world in which the gap between the materially rich and materially poor is growing ever wider, this phenomenon - referred to as 'altruistic punishment' - is of great relevance to us all. In fact, it makes sense to ask the question the other way round: "Why not use a theory which predicts how people actually play?"In reality, people do care about the welfare of others,so we are developing altruistic economics to deal with this fact.We're not trying to fit the people to the model, but fit the model to the people. http://www.altruists.org/ideas/economics/behavioral/

[coesillian 0]

[ChrisRichey 1]

So somebody else is putting up the money and get it for free as long as we agree on a split? Maybe I'm too generous, but I'd offer 50/50.

[LongLiveYorke 38]

you don't seem like the gambler type in this case. Would you really be content in giving 99$ away to insure you get 1. Wouldn't offering 60/40 achieve the same goal.

I meant we should take 99 and our opponent should get 1. Or, if we're allowing cents, we should take $99.99 and our opponent should get $.01. Am I not understanding the problem? How is this not the answer objectively?

[solderz 0]

I meant we should take 99 and our opponent should get 1. Or, if we're allowing cents, we should take $99.99 and our opponent should get $.01. Am I not understanding the problem? How is this not the answer objectively?

A sum of mobney X is to be divided anonymously. The first player proposes how to divide a sum of money with the second party. If the second player rejects this division, neither gets anything. If the second accepts, the first gets her demand and the second gets the rest.

[LongLiveYorke 38]

A sum of mobney X is to be divided anonymously. The first player proposes how to divide a sum of money with the second party. If the second player rejects this division, neither gets anything. If the second accepts, the first gets her demand and the second gets the rest.

...... right.....so.... how am I wrong?Why would the second person reject something in favor of nothing...?

[Theraflu 1,035]

...... right.....so.... how am I wrong?Why would the second person reject something in favor of nothing...?

It seems like you're using objectively and realistically in the same manner. Realistically, most people would rather screw you out of $99 instead of making $1, since you were being an asshole by offering it. This is why, in the first post, the amount of X is extremely important. Most people will tell you fuck off if 1% = $1, but if 1%=$10,000, then they'll just bitch loudly while accepting the deal.

[DoinSublime 0]

I came across this a while ago. I think Mr. Easterbrook sums it up quite well.If you were wondering what is wrong with the world...courtesy of Gregg EasterbrookWhen Researchers Projected Magnetic Fields Into Cheney's Brain, He Became Friendly: Economists call it the Ultimate Game, and have long contended it proves Homo sapiens insufficiently logical. Here's the situation. Two strangers are brought together by a third person who holds $1,000. He tells them the money is theirs to divide on these terms: Stranger A must propose how to split the $1,000, and Stranger B must either accept or reject A's offer. That concludes the game, no second round. Classical economists maintain Stranger A should say, "I propose that I get $999 and you get $1," and Stranger B should immediately respond, "I accept." Pure economic theory says A should maximize his gain by shafting B out of every possible farthing, while B should calculate that since his sole choice is between $1 and nothing, $1 is better. Yet researchers have played this game with volunteers in many nations, and it never works the way theory says. The bare-minimum offer is always rejected. Generally, A must offer at least 30 percent or B says no and both players get nothing. Classical economists have long harrumphed that B's response when the game is played with real money shows human beings are too emotional and insufficiently focused on maximizing outcomes.This pot was stirred last week when researchers led by Dario Knoch of the University of Zurich reported that using magnets to disrupt the right prefrontal cortex of volunteers playing Stranger B caused them to become much more willing to accept low offers. Now, if someone was using magnetic waves to scramble parts of your brain, your bargaining skills might decline, too. ("Herr Professor Doktor, ve haff discovered zat when ve knock der volunteers unconscious mit ein sledgehammer, zey refuse to aufgeparticipatehaffen* in the experiment.") But I think tests like the University of Zurich study only point to the Ultimate Game being so flawed that it mainly shows us faults of classical economics.First, the game assumes money is superior to all other forms of possessions, including psychological well-being. But the world doesn't work that way. If I am Stranger B and accept the $1 offer, I have a dollar bill but also feel like a total dupe: And how can being made to feel like a dupe be worth a mere dollar? Any small-percentage offer accepted by B would make B feel unhappy and taken advantage of, while rejecting the small-percentage offer gives B the pleasure of feeling retribution was achieved against A. Once the offer gets up to around 30 percent, then the value of the money might equal whatever unpleasant thoughts B will experience when seeing A cackling and counting a larger pile of loot. Reactions like rejecting very low offers do not, as classical economists maintain, show that B fails to understand economics. They show that B understands money is not everything!Next, people in the B role might derive long-term benefits from refusing low offers, and these benefits might exceed the value of the money forgone. In his important new book "The Origin of Wealth," Eric Beinhocker speculates that the kind of circumstances in which B refuses a too-low offer are "the cornerstone for social cooperation that is essential for wealth creation." In order for the free market to serve the overall welfare of society, Beinhocker maintains, all must mutually agree not to participate in arrangements that exploit those with weak bargaining positions. Society must be structured such that A would feel ashamed of offering only $1 to B, and would offer a fair sum in order to feel good about the transaction. If parties in strong positions offer fair sums, the result is mutually beneficial trading for everyone, including the strong. (Are you listening, Wal-Mart?) "The Origin of Wealth" is a major new book that ought to be commanding significant attention. Beinhocker, a management consultant for McKinsey & Company, argues persuasively that market economics is not a war of all against all. Market economies do best, Beinhocker says, and the welfare of society rises most, when people voluntarily take each other's interests into account.Finally, TMQ contends economists misunderstand their own Ultimate Game because the focus of discussion is always on what Stranger B will accept. The key to this puzzle is not B but Stranger A -- who is a total, utter idiot for offering only $1 because this insures A gets nothing! Offers in which A seeks to claim the lion's share are irrational on A's part, because such offers will fail. I would argue there is only one wise offer for A to make: that they each get $500. A 50/50 split is sure to be accepted, thus insuring Stranger A of pocketing $500. A fair-minded person playing the A role would offer a 50/50 split because it is fair; economically this is also the logical move, because it guarantees a successful transaction. By focusing on whether B will accept an inequitable offer, economists skip over how dumb it is for A to make such an offer. By contrast, fairness leads to benefits for both parties, which is the big point of "The Origin of Wealth."(*Note: Tuesday Morning Quarterback has long contended that any verb can be converted into pseudo-German using the formula aufgeXXXXXhaffen. Thus to jog becomes to aufgejoggenhaffen, etc.)

[runthemover 39]

I don't get it. Why is this obviously not 99-1?

he's not assuming rational players

[DoinSublime 0]

he's not assuming rational players

Define rational. Is offering $1 and then getting turned down and you receive nothing rational?

[zimmer4141 0]

Define rational. Is offering $1 and then getting turned down and you receive nothing rational?

No, but is turning down $1 merely to spite someone else rational?

[Theraflu 1,035]

No, but is turning down $1 merely to spite someone else rational?

Yes. Would you pay someone a dollar to spit in their face in they weren't going to attack you after? Of course!!! Especially if they're latino.

[DoinSublime 0]

No, but is turning down $1 merely to spite someone else rational?

I think you missed the point. Feeling like a dupe < getting a dollar. Spite is besides the point.

[runthemover 39]

a rational actor would take anything over nothing, so for game theory/decision purposes you should offer $1 since the other player (if rational) will accept this offer.Of course introducing spite into the equation makes for a whole different answer.

[DoinSublime 0]

a rational actor would take anything over nothing, so for game theory/decision purposes you should offer $1 since the other player (if rational) will accept this offer.Of course introducing spite into the equation makes for a whole different answer.

Reread the two bolded portions of my first post. It can't be said any better than that imho."Finally, TMQ contends economists misunderstand their own Ultimate Game because the focus of discussion is always on what Stranger B will accept. The key to this puzzle is not B but Stranger A -- who is a total, utter idiot for offering only $1 because this insures A gets nothing! Offers in which A seeks to claim the lion's share are irrational on A's part, because such offers will fail. "You all are focusing on what B will accept, when you should be focusing on A's stupidity and greed, which always fails when they offer the lowest amount possible, because they get nothing either.

[runthemover 39]

Reread the two bolded portions of my first post. It can't be said any better than that imho."Finally, TMQ contends economists misunderstand their own Ultimate Game because the focus of discussion is always on what Stranger B will accept. The key to this puzzle is not B but Stranger A -- who is a total, utter idiot for offering only $1 because this insures A gets nothing! Offers in which A seeks to claim the lion's share are irrational on A's part, because such offers will fail. "You all are focusing on what B will accept, when you should be focusing on A's stupidity and greed, which always fails when they offer the lowest amount possible, because they get nothing either.

I can't really tell if you are saying my post is wrong, but it isn't. At least not from a game theory standpoint. If both A and B are rational players, then the answer will be 99 - 1 . this is because they both realize B wants more than 0 and 1 is more than 0. But, like I said before, if they are not rational players, then the outcome will be much different.How much different? We can't know. It all depends on the type of people A and B are. B might be greedy and only accept the offer if he gets more than half otherwise prefering both to get nothing. A might be a pure game theorist and expect B to be rational as well and always offer 99-1.

[DoinSublime 0]

I can't really tell if you are saying my post is wrong, but it isn't. At least not from a game theory standpoint. If both A and B are rational players, then the answer will be 99 - 1 . this is because they both realize B wants more than 0 and 1 is more than 0. But, like I said before, if they are not rational players, then the outcome will be much different.How much different? We can't know. It all depends on the type of people A and B are. B might be greedy and only accept the offer if he gets more than half otherwise prefering both to get nothing. A might be a pure game theorist and expect B to be rational as well and always offer 99-1.

I'm not saying your post is wrong. Pure game theory's definition of rational is what I would say is wrong. I don't think expecting B to take $1 over nothing is rational.I hear what you're saying though. I don't think I am explaining myself as well as I could be?I guess TMQ's point is that pure game theory is irrational in the real world, as it never works. Which is what I agree with.