Traditional approaches to decision analysis assume that decision makers are rational, but in reality, we’re fairly irrational. That’s what makes us human. What happens in certain applications when decision makers are likely to be spiteful? That’s what one of my students addressed in his presentation for my class in multiobjective decision analysis (all students have to present a research article).
The Ultimatum Game is a test of whether decision makers play in a “traditional” manner in bargaining games. This game involves two players, the Proposer and the Responder. The game is played only once, and the players remain anonymous to one another. The Proposer is given a certain amount of money (say, $20) and the Proposer divides this amount into two to give to each participant (say, $15 for the Proposer and $5 for the Responder). The Responder can either accept the amount or reject it, resulting in neither player receiving any money. The Game Theory solution to this problem is for the Responder to accept the amount that the Proposer gives–regardless of the amount of the reward–because some money is better than none.
However, in many experiments, it has been shown that if Proposers offer less than 25% of the total amount to the Responder, the Responder nearly always rejects it. This is nuts–they are rejecting free money! This was verified in countries all over the world. When the study was done in rural Indonesia, the Responders (poor workers) would reject money that would amount to several weeks worth of wages — out of spite! I bet there are a million applications where this would be useful.
References
Camerer, Ho, Chong. “A cognitive hierarchy of games,” Quarterly Journal of Economics, 2004.
Cameron. “Raising the stakes in the Ultimatum Game: Experimental evidence from Indonesia,” Economic Inquiry, 1999.
Henrich. “”Does culture matter in economic behavior?” American Economic Review, 2000.
Slonim, Roth. “Learning in high stakes Ultimatum Games: An experiment in the Slovak Republic,” Econometrica, 1998.
Punk Rock Operations Research 
May 16th, 2007 at 6:21 pm
What a great idea he came up for the game i wish you the best of luck with it and with the experiment.
June 20th, 2007 at 8:53 am
I found a good cognitive hierarchy theory of one-shot games is downloadable (a pdf) at:
Click to access QJE1202a.pdf
July 4th, 2007 at 11:12 am
Nice, informative URL.
July 4th, 2007 at 11:32 am
This assumes of course general rationality and that life is rational.
Sadly nothing could be further from the truth .
A clear calm , one step at a time rational approach to life and its problems is often and usually best.
Sadly such an approach is often not to be.
Look at events in the world – world war 1 and 2, the middle east conflict , the response of a most major american industry – the automobile industry and its response competition – to build old trucks loaded with options and call them suvs in an attempt to escape government safety and fuel controls that were meant for the common good.
Look at drug and alcohol as well as tobacco addiction – are these rational avenues in any way.
It would be nice to say that man is a rational creature. However often nothing can be more than further from the truth.
And yet many events in life are chance . When you look at the probabilites in statistical , academic terms are more than improbable , they are impossible. One in a million chance and then a millionth a chance in the next sequence and it yet it occurs.
It reminds me of cartoon on a professor’s door of mine. Chicken Little pointing to a downward graph with a pointer and exclaiming ” I predict that if current rates and trends prevail that the sky will fall.”
July 5th, 2007 at 12:56 pm
How true.
The assumption always in debates and arguements is that the world is a rational place when all arguements to the contrary are to the opposite.
“A guide for rational living in an irrational world” is not an accident.
If you look at many if not most of the human interractions you have logic and rationality is not the ongoing thread.
On top of that internal rationalizations and just plain emotional ego kick in automatically and with no conscious indeed unconscious thought.
It may be well said that “people are weird”. Indeed many people act in totally illogical and indeed counterproductive manners to their own ends.
Many of major world shattering events had little logic in their basis.
Was Pearl Harbour logical ?
Was the Sept 11 attack logical ?
Ditto the first world war.
In order to function in the real world on a day to day basis any person has to make assumptions based on logic and previous interractions.
The problem occurs when the mind jumps from assumption a > assumption b > assumption z must be true.
The magical ( and not unreasonable logic)
However the person may not share the values you have , or even comprehend those values that you have and reasonably assume that person number 2 seems to spout.
This is where problems kick in.
And yet if we had to start examination of discoveries of every personal interaction we have on a day to day basis we would be stymied.
When you get down to it in fact most major events and catastophies in life involve seveal common element- usually assumptions of logic in personal interractions and usually either alcohol and passion for women or both.
July 6th, 2007 at 9:50 am
Great Info you have here!
July 15th, 2007 at 4:32 pm
wow very interesting study. As human beings we are constantly interprating situations we find our selves in. For example those no taking the money would be interprating the offer to mean. “I’m i worth that?” The same person would pick that amount they had rejected if they had stumbled upon it. Don’t you think?
August 2nd, 2007 at 9:19 am
Excellent blog!!!
Written by Melus from psychoarts NLP, hipnoza, manipulacja, perswazja, wywieranie wpływu, umysł, medytacja, medytacja metodą silvy, psychologia, parapsychologia, sny, sennik, znaczenie snów, oobe, nde, magia, uwodzenie, nls, Mystery Method, Speed Seduction, biznes,
August 8th, 2007 at 9:30 am
thanks for your information~
August 11th, 2007 at 6:11 pm
Nice information here
August 15th, 2007 at 4:05 pm
Rules of thumb, intuition, tradition, and simple financial analysis are often no longer sufficient for addressing such common decisions as make-versus-buy, facility site selection, and process redesign. In general, the forces of competition are imposing a need for more effective decision making at all levels in organizations.
Now this Ultimate Game you mentioned looks like a viable Progressive Approach to Modeling: Modeling for decision making involves two distinct parties, one is the decision-maker and the other is the model-builder known as the analyst. The analyst is to assist the decision-maker in his/her decision-making process. Therefore, the analyst must be equipped with more than a set of analytical methods.
Specialists in model building are often tempted to study a problem, and then go off in isolation to develop an elaborate mathematical model for use by the manager (i.e., the decision-maker). Unfortunately the manager may not understand this model and may either use it blindly or reject it entirely. The specialist may feel that the manager is too ignorant and unsophisticated to appreciate the model, while the manager may feel that the specialist lives in a dream world of unrealistic assumptions and irrelevant mathematical language.
Cheers!
Joey
NLP Power