The Ultimatum Game: Two players interact to decide how to divide a sum of money that is given to them. The player A proposes how to divide the sum between the 2 players, the player B can either accept or reject the proposed offer. If the B rejects the offer, neither player receives anything. If B accepts the offer, the money is split according to the offer. The experiment has been run with a variety of amounts offered. Let's consider that Player A is given $100 to divide between the 2 players.
Proposed strategy: A strict economic "rationality" says that Player A should give Player B as little as possible because he has to give something or neither player gets anything. Player B 'should' accept whatever he is offered because, if he doesn't, then neither player gets anything and something, no matter how small, is better than nothing.
General results: While results have varied over the years with the adjustment of different parameters, the general results indicate that in most cases Player A will offer a 40-50 split. However, when the offer is less than the 40-50 split, it has been found that Player B will usually reject any offer that is less 25-30%.
Analysis: If 'economic man' is deemed to be 'rational, utility-maximizing and self-maximizing', why would he reject any 'positive' offer which, by definition, increases his economic position? Can it be that 'economic man' is governed not so much by economic considerations as by some social or psychological factors? An article in The Economist, "Money Isn't Everything", begins:
"Psychologists have known for a long time that economists are wrong. Most economists-at least, those of the classical persuasion-believe that any financial gain, however small, is worth having. But psychologists know this is not true. They know because of the ultimatum game, the outcome of which is often the rejection of free money". (http://www.economist.com/node/9433782)
Considerations: So what is going on here? Rejecting any offer is considered to be 'irrational'. Yet, concern that an 'irrational' offer might be rejected prompts Player A to make a more equitable offer in most of the cases. So why does Player B reject any 'low' offer or Player A offer more than is necessary? Some psychologists feel that an explanation enters the domain of 'fairness'.
Jonathan Haidt and his concept of Fairness: In Haidt's notion of Moral Foundations Theory, the concept of Fairness has the flip-side of Cheating. Together the two concepts generate ideas of justice, rights and autonomy. He feels fairness has three perspectives: proportionality, equality and procedural fairness. Proportionality means that rewards are extended on the basis of ones contributions to a project. Equality means that everyone gets the same amount. Procedural fairness means that "honest, open and impartial rules are used to determine who gets what".
For discussion: If you were Player A, how much would you offer? If you were Player B, would you reject any positive offer? At what amount? Do you feel an economic explanation is appropriate to the Ultimatum Game? If not, do you feel a social or psychological explanation is appropriate? In short, do you think a rational explanation or a fairness explanation is appropriate to this experiment? And, if you think that fairness is appropriate, what does that fairness involve? Which of Haidt's three perspectives on fairness, if any, do you see as relevant?
For your reading pleasure:
Ultimatum game - http://en.wikipedia.org/wiki/Ultimatum_game
It's Not Fair - http://www.psychologytoday.com/blog/am-I-right/201205/it's-not-fair-what-is-fairness
Jonathan Haidt - http://firedoglake.com/2013/01/06/morals-and-selfishness