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A Note on the Ultimatum Paradox, Bounded Rationality, and Uncertainty

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  • Thomas Webster

Abstract

The ultimatum game is a sequential-move bargaining game in which a giver offers a taker a share of a monetary pie. The predicted subgame perfect equilibrium in the ultimatum game is for purely rational givers who act in their own narrow self-interest to offer the smallest possible share of a monetary price, and for purely rational takers to accept. Experimental trials suggest, however, that givers make generous offers because they have a taste for fairness. The analysis presented in this paper argues that it is in the best interest of givers of any type to make offers that will not be rejected, and that offers become more generous as a giver’s uncertainty about the taker’s reservation offer increases. Copyright International Atlantic Economic Society 2013

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  • Thomas Webster, 2013. "A Note on the Ultimatum Paradox, Bounded Rationality, and Uncertainty," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 19(1), pages 1-10, February.
    • Handle: RePEc:kap:iaecre:v:19:y:2013:i:1:p:1-10:10.1007/s11294-012-9382-z
    DOI: 10.1007/s11294-012-9382-z
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    Cited by:

    1. Larney, Andrea & Rotella, Amanda & Barclay, Pat, 2019. "Stake size effects in ultimatum game and dictator game offers: A meta-analysis," Organizational Behavior and Human Decision Processes, Elsevier, vol. 151(C), pages 61-72.
    2. Benjamin Patrick Evans & Mikhail Prokopenko, 2021. "Bounded rationality for relaxing best response and mutual consistency: The Quantal Hierarchy model of decision-making," Papers 2106.15844, arXiv.org, revised Mar 2023.

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    More about this item

    Keywords

    Ultimatum game; Fairness; Pure rationality; Bounded rationality; Uncertainty; C70; C72; C78; D03;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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