Expectations and fairness in a modified Ultimatum game

Abstract

Non-cooperative game theory predicts that Allocators in Ultimatum games will take almost all the ‘cake’. Experimental evidence is in sharp contrast with this prediction, as several experiments show that the modal offer is the even split. Interpretations of such results usually make reference to two competing explanations. One invokes the notion of fairness; the second argues that in the absence of common knowledge of the rationality and beliefs of Recipients, Allocators raise their offers because they expect that non-satisfactory offers might be rejected. Although several experiments have been successful in inducing more selfish offers by manipulating the Allocators' expectations, they have done so predominantly by means of extrinsic manipulations that are not accounted for by game theory. The present study introduces a minor variation of the Ultimatum game by implanting a discounting factor, δ (0 ≤ δ ≤ 1), in the standard game. Whereas game theory is indifferent to this modification, experimental results from the modified game show that by continuously changing δ, it is possible to induce systematic changes in Allocators' and Recipients' behaviors and beliefs. These results are used to competitively test the fairness and expectations hypotheses.