The Ultimatum Game

The Ultimatum Game is a famous experiment in economics with surprising real-life application. Basically, the way it works is that an experimenter offers a participant one $10. Participant one is then to decide how to split those $10 between himself and a participant two. But here’s the catch: if participant two does not accept the proposed split, they both get nothing.

Now, imagine you are the participant one and just got offered $10. How would you split it? Really think about it.

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Ok, so if you are “rational”, in the way economics defines it as maximizing self-interest, then you proposed $9.99-$0.01 reasoning that $0.01 is strictly more than $0 and so participant two cannot not accept it, rationally.

If this was your choice then you’d be surprised to learn that participant two did in fact reject your proposed split. In fact, you’d be further surprised to learn that offers that give participant two less than $3 often get rejected, and that you need to approximate $5 to each if you want to guarantee your offer gets accepted. 

But maybe you did propose a 50-50 split immediately. Maybe based on this… “irrational” feeling that 50-50 just feels… fair? Or… good, inside? 

But where does that “feeling of fairness”, or feeling for fairness, come from? 

You’re pondering these delicious theoretical questions as everything turns black. A bag has been put over your head. You get hit in the head. You wake up to realize that this crazy experimenter has kidnapped both you and participant two and dropped you in the jungle. “But how is there a jungle so close?--” It doesn’t matter. Your head hurts. You see some berries and, panicking about getting hungry, forgetting all of the above, eat them all. Two days pass. Now you’re really starving. Participant two finds a cornucopia and keeps it all to himself. You die of starvation.

Or, or, maybe you kept your wits about you and remembered that experiment or, at least, connected sufficiently with your “feeling of fairness” to split those berries. When the two days pass and participant two finds the cornucopia they, due to a mixture of the goodwill you accrued with and a sense of internal obligation, decide to split the fruits of the cornucopia with you. You nourish yourselves as you plot vengeance.

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I’m gonna make a bold claim here: the above illustrates a wider dynamic. Groups where participants failed to divide their resources in a way that maximized the survival chances for everyone in the group tended to have their participants die off. And those who divided fairly tended to have more of their members survive. 

Groups with larger numbers ended up generally conquering those with smaller numbers and so the ability to divvy up resources “fairly” ended up being selected for. 

Enough generations have passed that is not “in-built” in all of us: we have an intrinsic sense of how 50-50 feels just right or just fair. 

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But I want to take our sense further, and redeem Jordan Peterson on the third post, since I dragged him on the first. (get it?)

You could indeed stop the split at 50-50 ( “fair”) but you could also go all the way to 40-60 or even 30-70 (“generous”). 

And the reason is this: you don’t know when you’ll be stuck in an experiment— or in the jungle— with participant two again. Maybe next time the tables are turned and they decide how to split, like in the jungle example above. Or maybe in the next experiment they get to select among all players they played the game with before who to play a new game of splitting $100 or even $1000. You. just. don’t. know.

Being generous you do know how much you stand to lose. But you don’t know how much you stand to gain. 

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An example of failing at the above I’ve often observed is with young football players.

I’ve seen many players, usually in their teens, who are very competent at football. But who are also insufferable in their boasting.

What this causes is that, pretty soon, no one wants to play with them and they’re playing by themselves. That is, no one wants to offer to split with them no matter what the split is. 

In this the “rational” economic agent, the lone huntsman whose tribe has all died off, and the competent but too boastful football player are making the same mistake: not realizing they’re not playing a one-shot game but, rather, an iterated multiplayer game where what matters is not to “win” this limited game but to keep getting invited to play, over, and over, and over again. 

More likely than not this is already the world you’re in: a world of repeated interactions, or “games”. 

Who do you rather play with, the player who takes up for themselves more than 50% of the space/energy/resources or the one who generously gives more than they take?

How do you choose to play, and how has that been affecting how much others have been inviting you for further games?