Ultimatum Game

[jake-the-peg]

Listening to a program on Game theory - ended on this rather interesting one.

You're given £100 - you have to offer me some of it

If I accept you keep the change

If I refuse we both get nothing

How much are you going to offer me?

(No right answer to this just interested in people's perpectives)

[boxtops]

This is a bit like Goldenballs then!

[jake-the-peg]

Is it? I've not seen that

It's a classic game theory problem because analytically you'd be best to offer me 1p

Being "rational" I should accept that over nothing - but that's not what happens in practice.

In practice people feel insulted and their sense of fairness kicks in

So what would you offer then?

[ludwig]

Does the potential recipient know how much you've got - ie that you've got a maximum of £100 to offer ?

[jno]

there's nothing particularly "rational" about accepting 1p. I wouldn't even bend over to pick up a 1p coin. It's not quite worthless but near as dammit and you could argue that just the mere effort of carrying it around outweighs the value of spending it. So I suspect I just wouldn't bother accepting money until it became an economically significant amount. 10p might do it?

[AB Editor]

The program was very good, for those who want to catch up, here it is:

[jd_here]

Oh jno, I always pick up pennies. All the copper that I receive in change goes into a pot and is donated to charity each year. Last year it was over £20, and a good percentage of that was picked up off the pavement.

[rowanwitch]

If they know the amount you have I suspect it would need to be around £20 if they don't theypossibly would not trust an offer of money for no reason and may not accept any

[ludwig]

I'll assume they know you've got £100 to play with.

If it was me I'd offer them £50. It wouldn't be necessary - you could probably get away with alot less - £5 would probably be accepted in most cases, but it would be a gesture of fairness which would pretty much guarantee we both went away with £50. Only an idiot would snub the offer of a 50/50 split.

This assumes that there are no other factors at play (e.g I absolutely need to come away with a minumum £80 to pay off my gambling debts and avoid having my kneecaps broken) and that anything I come away with is 'free' money.

[Davethedog]

Do you know I have £100?

[rojash]

I'd offer 50 quid. After all, I've no more right to it than you, so why shouldn't we share it as a windfall?

[jno]

I must be older and stiffer than you, jd_here.

Yes, it would depend what the offeree knows. If I knew that if I accepted 1p it would get you £99.99, I'd have to have some good reason to agree (eg you are my mum). If all I knew was that you'd said "Would you like 1p?" a whole different set of factors would be in play.

[rowanwitch]

I wonder if for a lot of people the amount they would need to be offered is £50.01 so they feel they are ahead of the game...

[jake-the-peg]

Yes everybody knows what the offer is

It's interesting because what is really happening is that people's sense of pride and fair play is kicking in - if you offer too little people feel insulted.

Pschologists have done repeated experiments in different cultures and with varying amounts of money and got reasonably similar effects.

It seems that on average people will refuse if you offer less than about 20%.

It's kind of got knock ons in negotiations - you're likely to get better results if you go in trying to win a majority of what you want rather than trying to win everything and sent the other person away otally empty handed.

I'm trying to think what I'd have offerred before listening - probably 40%

Now? 25%

[Seadragon]

The 50/50 split is fair as all are in the know. However if there is bargaining then obviously I am going to try and keep as much as possible and start of at around 10%.

[ludwig]

I'd still offer £50 in all circumstances. No more or less.

As rowanwitch says there's a possibility some smartalec will want to profit maximise and hold out for more than a 50/50 split. In which case they'd get nothing.

[Seadragon]

But you don't know that Ludwig....At the end of the day, it's a better outcome to have something then nothing. It just depends upon the figures?

[ludwig]

But you don't know that Ludwig

I don't understand SD - what don't I know?

[rowanwitch]

A lot to me would depend on the personality types and possibly gender of those involved. Some folk are very all or nothing some will negotiate some will be competitive,,, Me its your money ... you can put a fiver in a charity box if you want to on my behalf

[Seadragon]

That somebody would hold out for a 50/50 split? Ludwig

[jomifl]

My thoughts were the same a Ludwig and Rojash, split it both ways.