Recently, I was wondering why people (including myself) seem to make irrational decisions. Often, we seem to make impulse purchases and then regret it later. I came a across a Newsweek article that described a game I’d never heard of called The Ultimatum Game:
Imagine that I have $100 and I offer you $20 of it, no strings attached. You’d take it, right? Any fool would; it’s a windfall. But imagine further that you know I must give away part of my $100 or lose it all. All of a sudden my motives aren’t entirely altruistic, but I’m still offering you free money. Take it or leave it, but no negotiation allowed. How would you feel? What would you do?
The Ultimatum game is used in experimental economics to model irrational behaviour. This site goes on to explain it further:
A typical experiment is the so-called ‘Ultimatum Game’, which involves two people (A and B) and 10 coins. Person A has 10 coins and places some of them in front of him, and the rest in front of person B, who is asked whether or not he accepts the proposed allocation.
- If B says ‘Yes‘, then both A & B keep the coins in front of them.
- If B says ‘No‘, then neither player gets any of the coins.
So which deals do you think people are most willing to accept?
Player A usually splits the coins nearly evenly, averaging around 6:4, and player B usually accepts this offer. Interestingly, autistic players are the only ones who consistently split the coins 9:1, as game theory predicts.
Player B usually accepts the allocation when the coins are fairly evenly split. However, with unfair allocations, especially when offered only a single coin, very few people make the ‘logical’ decision to accept the offer.
This is exactly how I would have behaved. But if you use game theory and you’re Person B, the only correct option is to accept every offer as long as it’s not zero. Surely something is better than nothing?
Write a comment