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The Ultimatum Game – Real Life Applications

The first article linked describes an aspect of game theory that the course touched on during the lecture: The Ultimatum Game. Specifically, the article examines a real life connection to The Ultimatum Game using the notion of a divorce negotiation and compares the outcomes of the two situations. The author delves into the idea that was briefly discussed in class that humans are not simply “economical animals”. Namely, there is an emotional element that greatly factors into human decision making that pure mathematical logic can and does miss.

In comparing these two situations, the first article acknowledges some strong differences. First, in the Ultimatum Game, there is only one attempt to come to terms on an agreement or else neither party will benefit. Conversely, in a divorce negotiation, in the example given by the first article, the husband has the opportunity to recreate another offer if refused. Also, The Ultimatum Game brings together two strangers who would, therefore, have no additional information about each other. On the other hand, while every divorce stems from different circumstances, there is a clear opportunity for resentment between the husband and wife. Beyond just resentment, both parties would most likely know each other’s personality traits quite well and thus there is an added element to the negotiation that needs to be accounted for.

However, the connecting factor between these two setups is that the purely economical interpretation and the actual human interpretation yield different results. Specifically, the purely economically theoretical one would appear that anything better than 100-0 should be accepted by the party in the weaker position but in practice we have found this not be the case because there are other factors that we as humans value. And while it may seem that humans would only disregard economically advantageous situations if its lower in scale (because there is less at stake and thus the emotional aspect is relatively greater), the second article illustrates an example where this is not the case. As the second article discusses, the Greek government rejected a European Union bailout on the scale billions of dollars to the impoverished country on the notion that the terms were unfair. It indicates too describes the connection that I have talked about to The Ultimatum Game in terms of power distribution and seemingly illogical decision-making. Yet, we see once again that humans value this notion of fairness so greatly that theoretical models feel incomplete if these aspects are disregarded.

There are a couple clear connections that these articles have to the course material. First, they offer real world applications to the theoretical situations that we have been modeling in our courses. Just as important though, is the final line in the third paragraph; our models need to account for these aspects of human interpretations in order to be complete and more accurate. As we explore different topics in the course, there may be disconnects between what we expect to see and what we actually see and reconciling those differences is an incredibly important aspect to the overall course material and the field as a whole.

http://www.loebherman.com/Document2.pdf

https://negotiateddivorce.com/2015/02/18/the-ultimatum-game/

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