Monday, October 29, 2007

The Ultimatum Game

Although rational choice theory has found its way into many useful applications, it's too simplistic to explain many of our decisions, especially when issues related to fairness come into play.

The latest issue of Science has a bunch of papers on the psychology and neuroscience of human decision-making:

"One focus of Game Theory is strategic bargaining behavior; the Ultimatum Game (UG) (6) is often used to examine responses to fairness. In the UG, two players must divide a sum of money, with the proposer specifying this division. The responder has the option of accepting or rejecting the offer. If the offer is accepted, the sum is divided as proposed. If it is rejected, neither player receives anything. If people are motivated purely by self-interest, the responder should accept any offer and, knowing this, the proposer will offer the smallest nonzero amount. However, this Nash equilibrium prediction is at odds with observed behavior, and the modal offer is a 50/50 split. Further, low offers of less than 20% of the total amount are rejected about half of the time (6). Thus, people's choices in the UG do not conform to a model in which decisions are driven by financial self-interest, and neuroscience has begun to offer clues as to the mechanisms underlying these decisions."

Alan G. Sanfray. Social Decision-Making: Insights from Game Theory and Neuroscience. (link)

(via Mind Hacks)


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