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Creating Culture in the Lab: Equilibrium Conventions in Inter-Generational Ultimatum Games

  • Schotter, A.
  • Sopher, B.

The Ultimatum Game and the experiments surrounding it, have presented economists with a puzzle that they have struggled to explain. But as Robert Aumann has pointed out, while there may be only one sub-game perfect equilibrium to the Ultimatum Game, there are an infinite number of Nash equilibria. All that is needed to maintain a non-sub-game perfect equilibrium is a set of Sender beliefs that the offer contemplated is the minimum that would be accepted and behavior on the part of the Receivers that confirms these beliefs. The only puzzle is how such a set of mutually consistent beliefs developed in the first place and how they are passed on from one generation of player to the next. Using an inter-generational game experimental setting, this paper investigates how "culture" serves as the selection mechanism which solves this puzzle. Culture is then simply a system of beliefs and self-confirming actions which support any one of these non-sub-game perfect Nash equilibria as the accepted solution to the game being played. The outcome is, as Robert Aumann has called it a "perfectly good" Nash equilibrium convention which is just not perfect.

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File URL: http://econ.as.nyu.edu/docs/IO/9188/RR00-07.PDF
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Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 00-07.

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Length: 50 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:cvs:starer:00-07
Contact details of provider: Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
Phone: (212) 998-8936
Fax: (212) 995-3932
Web page: http://econ.as.nyu.edu/object/econ.cvstarr.html
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  1. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May.
  2. Nyarko, Yaw & Schotter, Andrew, 1998. "An Experimental Study of Belief Learning Using Real Beliefs," Working Papers 98-39, C.V. Starr Center for Applied Economics, New York University.
  3. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  4. Gary E. Bolton & Axel Ockenfels, 1998. "Strategy and Equity: An ERC Analysis of the Guth-van Damme Game," Levine's Working Paper Archive 2060, David K. Levine.
  5. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  6. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  7. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-136, December.
  8. Gary Charness and Matthew Rabin., 2000. "Social Preferences: Some Simple Tests and a New Model," Economics Working Papers E00-283, University of California at Berkeley.
  9. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  10. Thaler, Richard H, 1988. "The Ultimatum Game," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 195-206, Fall.
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