What can The Ultimatum Game tell us about how People Cooperate?
The game is very simple. It’s played between two people who have to decide how to split an amount of money. Let’s say it’s $100.
One of the two people is randomly chosen to make an offer to the other about how to split the money between them. If the other person accepts this offer then they split it on that basis. But, if the other person rejects it, neither of them gets anything.
The reason some economists and psychologists have got excited about it is because of how people behave when they play this game. What you find is that most people make offers of splitting the cash somewhere between 40% and 50%. Generally speaking if an offer is made below about 30% it will be rejected by the other person more often than not.
The Ultimatum Game has been pointed to as a way of showing that humans are economically irrational. Why do people reject an offer of 25% of the total pot? If the pot is $100 then they are choosing between getting $25 or nothing at all. So why do they choose nothing at all?
The answer seems to be that people generally find offers below 30% to be insulting. It’s insulting that the other person should suggest such a derisory sum, even when it’s free money. So they prefer to have nothing and punish the other person’s greed. And remember the other person is losing $75 in this case whereas I’m only losing $25…