Play the Ultimatum Game

Are you a rational or an emotional person (or a mix of the two)?

Shall we play the Ultimatum Game to find out?

ps: play it in your mind, of course.  Now-a-days, the Americans have a word for it - 'Thought Experiment' - which I dislike (intensely) because it sounds like fingernails on glass

This is a simple, take-it-or-leave-it bargaining environment. Say, a stranger (call him GameOwner) brings another stranger up to you (GamePlayer) and asks you for your participation in an activity.  You agree.  GameOwner and GamePlayer do not know each other and have just been introduced.  So, all three of you are strangers to each other. 

GameOwner then takes out a bunch of ten-rupee notes and speaks to GamePlayer in front of you: "I am giving you ten ten-rupee notes - that is a hundred rupees.  You can share how many notes you wish with this person (that's you!)."

GameOwner then talks to you: "When you receive the money, if you choose to keep whatever you receive, GamePlayer keeps what is left with him.  If you reject the offer from GamePlayer, I get back the whole amount - that is, a hundred rupees - from him!  A key condition: both of you are not allowed to speak"

GameOwner then gives GamePlayer the ten-rupee notes.  And do you know what GamePlayer does?

He keeps eight of those ten notes, and gives you just two!

What do you think you will do?  Will you keep the twenty rupees or will you reject it?  

The Ultimatum Game was designed forty years ago, in 1982, and is now one of the most popular games in Behavioural Economics, having been played thousands of times all over the World.  The key result of Ultimatum Game experiments is that most proposers offer between 40% and 50% of the endowed amount, and that this split is almost always accepted by responders.  What does this tell us?

That, by and large, people are fair and you can trust them.  (Are you willing to accept this? When I first read about the results, I wondered which planet they were referring to, but, of late, I am more receptive to positive news.  )

Now for the next (and final) question: what did you do in that Game - did you accept the twenty rupees (rational behaviour) or reject it (emotional, because it is so so unfair) ?

What experiments reveal is that, when the proposal falls to 20% of the endowment (that is, a person gets two out of ten notes, say), it is rejected about half of the time, and rejection rates increase as the proposal falls to 10%.
(results quoted from Experimental Economics and Experimental Game Theory, Daniel  Houser and Kevin McCabe)

The reason we tend to reject a bad offer is because the decision to do so is taken by a part of the brain called the amygdala which is the chap within responsible for social and emotional decisions.  The amygdala triggers a desire to punish the GamePlayer for being unfair.  

Fascinatingly, people with damaged amygdalae are generous to a fault!  They will continue to trust someone and accept their bad offers.

(for more on amygdala, the brain - and about everything else - read up a brilliant book called Behave, by Robert Sapolsky)

ps: my amygdala seems normal for the moment. 

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