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Creating Culture in the Lab: Equilibrium Conventions in Intergenerational Ultimatum Games

  • Barry Sopher

    ()

    (Rutgers University)

  • Andrew Schotter

    ()

    (New York University)

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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Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200020.

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Date of creation: 24 Oct 2000
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Handle: RePEc:rut:rutres:200020
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  1. Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
  2. Georg Kirchsteiger & Martin Dufwenberg, 2004. "A theory of sequential reciprocity," ULB Institutional Repository 2013/5899, ULB -- Universite Libre de Bruxelles.
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  6. Gary Charness & Matthew Rabin, 1999. "Social preferences: Some simple tests and a new model," Economics Working Papers 441, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2000.
  7. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
  8. 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.
  9. Thaler, Richard H, 1988. "The Ultimatum Game," Journal of Economic Perspectives, American Economic Association, vol. 2(4), pages 195-206, Fall.
  10. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
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