Game Theory, Self Interest, and Unfairness
The Ultimatum Game is a common game examined in game theory. It requires two individuals, a proposer and a responder. The proposer is endowed with a sum of money and proposes to split it with the responder. The responder can accept the split and each receives his or her share. Conversely, the responder can reject, and each player receives nothing.
The standard economic model predicts that the responder should accept any positive offer because even a minimal gain in wealth, or utility in the case of goods, is preferable to no gain. Building on this assumption, the standard model also predicts that the proposer should offer the smallest amount due to his or her own self-interest.
Sanfey et al. conducted a study of the Ultimatum Game to observe contestants’ behavior and, more specifically, how the responders react to various offers of splitting $10. They modified the typical game and included a component in which a computer is the proposer to further understand the mechanisms that compel responses that contradict self-interest.
The results of the conventional game were similar to previous Ultimatum Game results, with the responder accepting fewer offers as they became more and more unfair. However, the responders reacted differently to offers made by the computer. In particular, the responders accepted $2 and $1 offers made by the computer at much higher rates than those made by a human proposer.
Sanfey et al. suggest that rejecting unfair offers is a simple objection of unfairness on principle, adding that it’s a, “Fundamental adaptive mechanism by which we assert and maintain a social reputation.” (Safney et al.) Further, the disparity in rejection rates for unfair offers from computers as opposed to humans suggests that humans actively punish those who treat them unfairly, where as an offer from a computer may be perceived as random and without emotion.
This insight is relevant to our coursework because it investigates the way individuals form bonds in the face of unfairness and self-interest. Each player in the Ultimatum Game can be seen as a node, with the responder’s response representing a positive or negative tie between the nodes. The presence of self-interest compels the responder to build a positive tie with the proposer, but unfairness can complicate this relationship.
The Neural Basis of Economic Decision-Making in the Ultimatum Game
Accessed via: http://www.sciencemag.org/content/300/5626/1755.full