Ultimatum game

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A two-person game (1) in which a monetary prize is divided by one player making a one-off proposal for a division of the prize and the other player either accepting or rejecting it, neither player receiving anything if the proposal is rejected. Suppose the prize is $10 or £10. Player I first proposes a division (such as 60 per cent to Player I and 40 per cent to Player II); then Player II either accepts the proposal, in which case the prize is accordingly divided, or rejects it, in which case neither player receives anything. From a game-theoretic point of view, Player I should offer Player II one penny, and Player II should accept this offer because one penny is better than nothing. Numerous experiments by the US economist Richard H. Thaler (born 1945) and others have shown that human players appear to deviate sharply from expected utility theory: Player I usually offers much more than one penny and often offers 50 per cent of the prize, and Player II usually rejects Player I's offer if it is less than about one-quarter of the prize, in which case it is perceived as too unfair or insulting to accept.

Subjects: Psychology.

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