A simple bargaining game that has been extensively studied by experimental economists.
(Henrich, 2000, p.973)
Two players are allotted a sum of money (termed the “stakes”). The first player, called the “proposer,” offers a portion of the total sum to a second person, called the “responder.” The responder can either accept or reject the proposer’s offer. If the responder accepts, she or he receives the amount offered and the proposer receives the remainder (the initial sum minus the offer). If the responder rejects the offer, then neither player receives anything.
Game theory predicts an unequal split favoring the person who gets the make the offer, yet experimental economics finds that a majority of the offers are to split equally. Experiments such as the dictator game, in which the player who makes the offer gets to keep their share regardless, shed some light on whether the fear of rejection explain the equal split offers in the ultimatum game.
Kevin, McCabe. (2003). What is the Ultimatum Game? Retrieved March 1, 2011, from http://neuroeconomics.typepad.com/neuroeconomics/2003/09/what_is_the_ult.html
Henrich, Joseph. (2000). Does Culture Matter in Economic Behavior? Ultimatum Game Bargaining Among the Machiguenga of the Peruvian Amazon. The American Economic Review, 90(4), 973-979.
Approved for glossaryposting by Ben Eisen on March 20, 2011