## Ultimatum Game - Your vote

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

## If player one shares \$2 million of the \$10 million with you, you woudl be:

Less likely to reject than in the \$10.00 game.
107
91%
Just as likely to reject as in the \$10.00 game.
7
6%
More likely to reject than in the \$10.00 game.
3
3%

Topic Author
Allan Roth
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Joined: Thu Sep 11, 2008 12:47 pm

### Ultimatum Game - Your vote

I'm writing a piece for Financial Planning magazine and wanted to see if you'd vote on this hypothetical question, with the following background:

There is a famous behavioral finance experiment called the ultimatum game. In the game, there are two strangers and an experimenter. It goes like this:

Two players interact to decide how to divide a sum of money that is given to them. The first player proposes how to divide the sum between the two players, and the second player can either accept or reject this proposal. If the second player rejects, neither player receives anything. If the second player accepts, the money is split according to the proposal. The game is played only once so that reciprocation is not an issue.

The experimenter typically gives the first player \$10 who decides how much of it to give to payer two, who will decide whether to accept and both players get to keep the sum of the \$10 or reject giving all \$10 back to the experimenter. In many instances, when player one only shares \$2 with player two, player two rejects and all \$10 goes back to the experimenter. Player two decides the amount shared by player one was unfair and is willing to right the wrong by giving up the \$2.

My question to you

Now imagine that you are player two in the ultimatum game. Instead of player one being given \$10, she is given \$10 million. She shares \$2 million with you, the same 20% as in the description above in the \$10 game. Could you kindly vote above? Sorry I'm a bit short on cash to carry out this experiment in reality.
Last edited by Allan Roth on Tue Nov 01, 2011 10:44 pm, edited 3 times in total.

HomerJ
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### Re: Ultimatum Game - Your vote

Of course, I'd take the \$2 million.

Interesting how the amounts change the result...

If he offered me \$500k, and kept \$9.5 million, I'd take that too...

If he offered me \$100k, and kept \$9.9 million, I'd be really tempted to reject it, but I'd probably take it.

If he offered me \$50k or less, I'd probably reject it... Stupid Jerk.

Nothing to do with the percentages... Purely on the utility of the money...
Last edited by HomerJ on Tue Nov 01, 2011 4:24 pm, edited 2 times in total.

bertilak
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### Re: Ultimatum Game - Your vote

I think I understood the game.

I selected the first option -- Less likely to reject than in the \$10.00 game.

For \$2 I am willing to punish player one without regard to my loss.

But, I will NOT pay \$2 Million for the pleasure of punishing player one.

Of course if I was a billionaire I would GLADLY pay the \$2 Million! So, if playing this game with me, someone better be sure of my net worth (and current mood) before trying to squeeze me! I THINK if player one offered me \$1000 I would NOT accept. It might be worth that much to punish player one.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

Snowjob
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### Re: Ultimatum Game - Your vote

rrosenkoetter wrote:Of course, I'd take the \$2 million.

Interesting how the amounts change the result...

If he offered me \$500k, and kept \$9.5 million, I'd take that too...

If he offered me \$100k, and kept \$9.9 million, I'd be really tempted to reject it, but I'd probably take it.

If he offered me \$50k or less, I'd probably reject it... Stupid Jerk.

Nothing to do with the percentages... Purely on the utility of the money...
what he said

Seriously I could retire with that plus my existing portfolio at 29...

wjo
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### Re: Ultimatum Game - Your vote

By scaling to \$2million, you are basically creating a distortion to the game known as wealth effects. For most folks, \$2million is more than enough to change the outcome. Not sure what you're going for here....

peter71
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### Re: Ultimatum Game - Your vote

While it's been awhile since I've studied this I did have to study it back in grad school and IIRC there's been considerable research on varying the size of the stakes -- though of course not up to the millions:

Best,
Pete

Fallible
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### Re: Ultimatum Game - Your vote

I'd take the \$2 million (but for giving me only 20 percent, I would never speak to this first person again...).
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

2sls
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### Re: Ultimatum Game - Your vote

These experiments have been quite quite extensively. You don't even need to poll people here if all you're interested is in how magnitude effects people's decision- simply look at the abundance of research done in very poor countries where twenty bucks is a few months of salary.

yobria
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### Re: Ultimatum Game - Your vote

I'd take any amount greater than zero, at any level.

Nick

Munir
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### Re: Ultimatum Game - Your vote

yobria wrote:I'd take any amount greater than zero, at any level.

Nick
Me too.

peppers
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### Re: Ultimatum Game - Your vote

..."show me the money"...
"..the cavalry ain't comin' kid, you're on your own..."

natureexplorer
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### Re: Ultimatum Game - Your vote

Before the other player even gets to make an offer, I will declare irrevocably and convincingly, that I hereby and in advance reject any offer that would provide me with less than a certain percentage.

Topic Author
Allan Roth
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### Re: Ultimatum Game - Your vote

Bill Gates must be on the forum as the person who was more likely to reject \$2 million than \$2. Seriously, thanks to those who participated and I'm guessing you know what I'm trying to drive at - most of us (including me) would accept something unfair if we would have to give back a lot of money to make it fair.

To an extent, our ethics are for sale. Not that we would commit murder for any amount of money but none of our ethics are pure. I admit that I broke the speed limit today.

Thanks again.

Allan

HomerJ
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### Re: Ultimatum Game - Your vote

Allan Roth wrote:To an extent, our ethics are for sale.
Hmm.. I think I disagree with this statement. Why am I being judged? I didn't make the unfair offer. I don't think taking an unfair offer reflects poorly on MY ethics.

bertilak
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### Re: Ultimatum Game - Your vote

rrosenkoetter wrote:
Allan Roth wrote:To an extent, our ethics are for sale.
Hmm.. I think I disagree with this statement. Why am I being judged? I didn't make the unfair offer. I don't think taking an unfair offer reflects poorly on MY ethics.
Yes, that is a real non sequitur. Not only do I get an insulting offer I get called unethical! I don't even know if I am getting called unethical for accepting or refusing the offer! Maybe for even agreeing to play the game.

I take back my vote!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

empb
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### Re: Ultimatum Game - Your vote

I really don't see how ethics come into play here at all. The players aren't equally entitled to the money (or entitled to it at all for that matter). In any case, if they did have some "right" to the money, the burden of ethical behavior is on player one since he is, essentially, in control of the outcome.

It's just a game. The first player is, rightfully, strategizing to maximize his take while knowing that the second player has decreasing leverage as the amount of money increases. The second player is simply weighing his annoyance over the first player having an advantage built-in to the game versus a potentially life-changing windfall.

nisiprius
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### Re: Ultimatum Game - Your vote

As I understand it, this is measuring the price of humiliation. Given the premises, I think the two players have equal power and that a fair division is 50%. If open negotiation were allowed, I can imagine someone making a case for one or the other player being entitled to more than 50%. or making me believe they believed the unequal division was fair... or something. My initial reaction was similar to empb's; it feels as if player A, by virtue of seeming to have control of the situation, might be entitled to more than 50%. But on further thinking, I'm just not sure this is true.

But I can't imagine being authentically convinced that the 20%/80% split is fair, so the person who gets the 20% is being humiliated.

And very simply, \$2 is such a trivial amount to me that I wouldn't allow myself to be humiliated at that price. But for \$2,000,000... try me.

I'm afraid the injustice would rankle to the point of being a real emotional problem going forward, though. And that player A might be well advised to stay clear of me in future.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

bertilak
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### Re: Ultimatum Game - Your vote

nisiprius wrote:it feels as if player A, by virtue of seeming to have control of the situation, might be entitled to more than 50%. But on further thinking, I'm just not sure this is true.
It might be a difference between being entitled vs empowered.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

Posts: 1055
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### Re: Ultimatum Game - Your vote

Interesting...

Like nisiprius, I agree that it seems to be the price of humiliation. For \$2,000,000 I'm willing to be pretty humiliated. For \$2, not so much.

It's like when people say, "you couldn't pay me enough to do that." Other than things that I would NEVER do, like murder and other illegal and really immoral things, there isn't a whole heck of a lot that you couldn't pay me enough to do. My price might be high, but there's a price for pretty much anything -- even if it's humiliating.

If I could be humiliated or uncomfortable for a day and then have enough money to be comfortable for the rest of my life? Bring on the sociopathic billionaire who likes to play games, please!

xystici
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### Re: Ultimatum Game - Your vote

Just as likely to reject as in the \$10.00 game.
Trust yourself, Break the rules, Don't be afraid to fail, Don't listen to naysayers, Work your butt off. "It is in your moments of decision that your destiny is shaped. Choose now and well"

Boglenaut
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### Re: Ultimatum Game - Your vote

I voted Less Likely to reject. It's easy to make a statement on principle when \$2 is involved. It's hard to give up the ability to retire today and meet all of life's financial goals based on principle.

I guess it is safe to say the logic is not scaleable.

SamGamgee
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### Re: Ultimatum Game - Your vote

Are the players allowed to talk it over? Here's what I'd do. I'd say:

"I have decided to change the game. Here's what I'm going to do. I have picked a number in my head. I will not tell you what the number is, or how I picked it. It is my secret. This number determines how I will react to your offer. You only get one chance: If you offer me more than my secret number, I will accept. If you offer me less than my secret number, then I will reject the offer."

Then I would accept whatever he offered me.

xerty24
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### Re: Ultimatum Game - Your vote

I find it too hard to say what I'd do in either situation, although I volunteer for the real experiment once OP gets more funding .
No excuses, no regrets.

natureexplorer
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### Re: Ultimatum Game - Your vote

SamGamgee wrote:Are the players allowed to talk it over? Here's what I'd do. I'd say:

"I have decided to change the game. Here's what I'm going to do. I have picked a number in my head. I will not tell you what the number is, or how I picked it. It is my secret. This number determines how I will react to your offer. You only get one chance: If you offer me more than my secret number, I will accept. If you offer me less than my secret number, then I will reject the offer."

Then I would accept whatever he offered me.
How is this changing anything?

kommisarrex
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### Re: Ultimatum Game - Your vote

I'm in the utility of wealth camp. This is only a question of what price point am I willing to be humiliated, sacrifice certain values, be uncomfortable, etc... I wouldn't run around the streets naked for \$2, but for \$2 million (plus legal fees) we'd have to at least talk about parameters

TV gameshows like "Who wants to be a Millionaire" and the other one with Howie Mandel are good examples. Take \$50k and walk or go for \$1 million. FWIW, I always figured if I ended up on a TV gameshow my walk away point would be \$100,000. Wouldn't change my life a whole lot, but would be a great cushion to have in the back pocket. Then again, no one has ever offered me \$20,000 to walk away. I imagine loss aversion starts to play a big role as well.

SamGamgee
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### Re: Ultimatum Game - Your vote

natureexplorer wrote:
SamGamgee wrote:Are the players allowed to talk it over? Here's what I'd do. I'd say:

"I have decided to change the game. Here's what I'm going to do. I have picked a number in my head. I will not tell you what the number is, or how I picked it. It is my secret. This number determines how I will react to your offer. You only get one chance: If you offer me more than my secret number, I will accept. If you offer me less than my secret number, then I will reject the offer."

Then I would accept whatever he offered me.
How is this changing anything?
Not much, but I might get more money that way. To be clear, I don't think this changes the rules of the game. I'm just saying I would claim that it does to try to get some leverage with the other player.

bigred77
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### Re: Ultimatum Game - Your vote

This is really just a testament to a major flaw in economic theory which is the assumption that all people act rationally and logically.

Even in the 10 dollar game, if the second person is offered a dollar (or taken to the extreme, a penny) that person should logically accept because he is better off accepting it than the next best alternative, which is declining it and receiving nothing. All lot of modern day economic theory assumes the 2nd player will accept any offer made to him, every single time. This is obviously not the case in reality (as proved by this thread) because not everyone acts rationally at all times. And you wonder why our countries government economists aren’t exactly batting 1000?

Another interesting question, what happens if everything remains the same but the 2nd person doesn’t know what the total amount given to the person is? He would probably be more likely to accept any offer then right? You’ve taken away the “spite” the factor and he should in theory focus more on what’s logical, i.e. any offer makes him better off. What if then person 1 actually has the 10 million and only offers 5 bucks?

natureexplorer
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### Re: Ultimatum Game - Your vote

SamGamgee wrote:
natureexplorer wrote:
SamGamgee wrote:Are the players allowed to talk it over? Here's what I'd do. I'd say:

"I have decided to change the game. Here's what I'm going to do. I have picked a number in my head. I will not tell you what the number is, or how I picked it. It is my secret. This number determines how I will react to your offer. You only get one chance: If you offer me more than my secret number, I will accept. If you offer me less than my secret number, then I will reject the offer."

Then I would accept whatever he offered me.
How is this changing anything?
Not much, but I might get more money that way. To be clear, I don't think this changes the rules of the game. I'm just saying I would claim that it does to try to get some leverage with the other player.
I think you might have more success by keeping the number not secret.

natureexplorer
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### Re: Ultimatum Game - Your vote

bigred77 wrote:This is really just a testament to a major flaw in economic theory which is the assumption that all people act rationally and logically.

Even in the 10 dollar game, if the second person is offered a dollar (or taken to the extreme, a penny) that person should logically accept because he is better off accepting it than the next best alternative, which is declining it and receiving nothing. All lot of modern day economic theory assumes the 2nd player will accept any offer made to him, every single time. This is obviously not the case in reality (as proved by this thread) because not everyone acts rationally at all times. And you wonder why our countries government economists aren’t exactly batting 1000?
Actually, the responses to this thread suggest that almost everyone would be rational (and unethical according to Allan) and take the \$2m.

However, in reality and in practice people act irrational and emotional all the time. Modern day economic theory is very much aware of that though, otherwise there wouldn't be a thing called "behavioral economics".

Brody
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### Re: Ultimatum Game - Your vote

Allan Roth wrote:Bill Gates must be on the forum as the person who was more likely to reject \$2 million than \$2. Seriously, thanks to those who participated and I'm guessing you know what I'm trying to drive at - most of us (including me) would accept something unfair if we would have to give back a lot of money to make it fair.

To an extent, our ethics are for sale. Not that we would commit murder for any amount of money but none of our ethics are pure. I admit that I broke the speed limit today.

Thanks again.

Allan

Allan, it seems to me that you are taking a viewpoint that 50/50 is what is fair. There is no "fair" or "unfair" at play here. None of this has anything to do with ethics.
I am the poster formerly known as Oneanddone.

yobria
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### Re: Ultimatum Game - Your vote

empb wrote:I really don't see how ethics come into play here at all. The players aren't equally entitled to the money (or entitled to it at all for that matter). In any case, if they did have some "right" to the money, the burden of ethical behavior is on player one since he is, essentially, in control of the outcome.

It's just a game. The first player is, rightfully, strategizing to maximize his take while knowing that the second player has decreasing leverage as the amount of money increases. The second player is simply weighing his annoyance over the first player having an advantage built-in to the game versus a potentially life-changing windfall.
Yes, there's no "ethics" angle here that I can see. It's a business decision.

Nick

Topic Author
Allan Roth
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### Re: Ultimatum Game - Your vote

rrosenkoetter wrote:
Allan Roth wrote:To an extent, our ethics are for sale.
Hmm.. I think I disagree with this statement. Why am I being judged? I didn't make the unfair offer. I don't think taking an unfair offer reflects poorly on MY ethics.
Ethics are defined as follows: that branch of philosophy dealing with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions.

I likely would have rejected the \$2 but certainly would have accepted the \$2 million. Doesn't this mean I was willing to right the wrong for \$2 but not for \$2 million?

I'm not sure I see humiliation in player 2 since it was player 1 who should be humiliated for being greedy if it came out.

Also, there is some evidence showing the higher the stakes of the ultimatum game, the higher amount player one is willing to share. The hypothesis is that player 1 is afraid to lose a large sum of money if player 2 rejects it. I suspect that if the \$10 million game were actually played, player one would share \$5 million with player 2.

Any thoughts welcome.

vectorizer
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### Re: Ultimatum Game - Your vote

For \$2 million, you could humiliate me in many ways.

Mel Lindauer
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### Re: Ultimatum Game - Your vote

Allan Roth wrote:Also, there is some evidence showing the higher the stakes of the ultimatum game, the higher amount player one is willing to share. The hypothesis is that player 1 is afraid to lose a large sum of money if player 2 rejects it. I suspect that if the \$10 million game were actually played, player one would share \$5 million with player 2.

Any thoughts welcome.
Hi Allan:

I suspect you're correct that player 1 would share \$5 million with player 2, since it's totally fair and minimizes the risk of player 2 rejecting a less-than-fair offer which would result in player 1 losing his entire share, too.

I know that if I were player 1, I certainly wouldn't risk making any offer other than the fairest one (50% split).
Best Regards - Mel | | Semper Fi

aetos
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### Re: Ultimatum Game - Your vote

I guess ill be the rational neo classical player. Id accept as low as one dollar in either game as any rational player should. Unless the offer is zero im going to end up better off than before.

Fallible
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### Re: Ultimatum Game - Your vote

Allan Roth wrote:
rrosenkoetter wrote:
Allan Roth wrote:To an extent, our ethics are for sale.
Hmm.. I think I disagree with this statement. Why am I being judged? I didn't make the unfair offer. I don't think taking an unfair offer reflects poorly on MY ethics.
Ethics are defined as follows: that branch of philosophy dealing with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions.

I likely would have rejected the \$2 but certainly would have accepted the \$2 million. Doesn't this mean I was willing to right the wrong for \$2 but not for \$2 million?

I'm not sure I see humiliation in player 2 since it was player 1 who should be humiliated for being greedy if it came out.

Also, there is some evidence showing the higher the stakes of the ultimatum game, the higher amount player one is willing to share. The hypothesis is that player 1 is afraid to lose a large sum of money if player 2 rejects it. I suspect that if the \$10 million game were actually played, player one would share \$5 million with player 2.

Any thoughts welcome.
I'm not certain this would be called ethics, but I believe we all have our price, and that we've all experienced this at some point in our lives whether or not we realized it at the time. I have realized it in retrospect and wonder where that "price" comes from, if we're born with it, and how it's reflected in our other behavior with money. It's the brain at work, of course, but where and how and why? Maybe it's similar to the "breaking point" we all seem to have. Whatever, if I am unethical for accepting the \$2 million so be it; maybe I'll make up for that by giving all of it to a favorite charity...or most of it...or at least some of it... :roll:
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

Topic Author
Allan Roth
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### Re: Ultimatum Game - Your vote

In my view, people that question their ethics are unusually the most ethical in my book. It's the person that believes their ethics are absolute that I think is so dangerous. Advisors that say "I always put my client first" are the ones that usually sell the most expensive product. My goal with the piece I'll be writing is to get all of us planners to think about the conflicts between our compensation and the clients' wealth. I am not so blind that I think my hourly model is conflict-free.

I appreciate all of the feedback.

Anyone know where I can get a billion dollars so I can run the experiment 100 times?

HomerJ
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### Re: Ultimatum Game - Your vote

You still haven't explained how refusing money is unethical...

Some guy comes up to me and says "Hey you want \$10?", and I say "No"... That's unethical?

Some guy comes up to me and says "Hey, if you take this \$10, I'll give that guy \$100? What do you say?" and I say "No thanks", I'm unethical?

Fallible
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### Re: Ultimatum Game - Your vote

Allan Roth wrote:In my view, people that question their ethics are unusually the most ethical in my book. It's the person that believes their ethics are absolute that I think is so dangerous. Advisors that say "I always put my client first" are the ones that usually sell the most expensive product. ...
I would agree, but have to admit I might not go with an advisor who said, "I usually put my client first," even if he's the less expensive one. Thanks for an interesting thread!
John Bogle on his often bumpy road to low-cost indexing: "When a door closes, if you look long enough and hard enough, if you're strong enough, you'll find a window that opens."

bottlecap
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### Re: Ultimatum Game - Your vote

Allan Roth wrote:
rrosenkoetter wrote:
Allan Roth wrote:To an extent, our ethics are for sale.
Hmm.. I think I disagree with this statement. Why am I being judged? I didn't make the unfair offer. I don't think taking an unfair offer reflects poorly on MY ethics.
Ethics are defined as follows: that branch of philosophy dealing with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions.

I likely would have rejected the \$2 but certainly would have accepted the \$2 million. Doesn't this mean I was willing to right the wrong for \$2 but not for \$2 million?

I'm not sure I see humiliation in player 2 since it was player 1 who should be humiliated for being greedy if it came out.

Also, there is some evidence showing the higher the stakes of the ultimatum game, the higher amount player one is willing to share. The hypothesis is that player 1 is afraid to lose a large sum of money if player 2 rejects it. I suspect that if the \$10 million game were actually played, player one would share \$5 million with player 2.

Any thoughts welcome.
Wouldn't the greater test of "ethics" - to the extent that this tests ethics - be to put the personal in player 1's shoes to see how much they would offer, given that they are the ones in the driver's seat? Despite any evidence to the contrary, I think player 1 would be safe to offer at least \$3 million without much fear of losing so much as a dime, as the poll bears out.

I answered as almost everyone else did because with \$2 and \$10, the consequence to me of punishing the "greedy" player 1 was negligible. With \$2 million, I look at that as free life-changing money that I'll accept despite the other player's poor conduct. I don't see it as unethical to fail to punish someone who's being a jerk. It's not my place to punish them, but if I can for little cost to myself, watch out: I may just do that.

JT

P.S. I was trying to think of a good analogy and one just popped into my head. Is it unethical for you not to try to "get even" with someone who wrongly cuts you off on the freeway? I don't think it's my ethical duty to punish them in that situation, no less at great risk of loss to myself.

CaliJim
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### Re: Ultimatum Game - Your vote

i dunno, I'd have to hire an adviser and pay him 2% to help me make my decision.

Brody
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### Re: Ultimatum Game - Your vote

Allan Roth wrote:In my view, people that question their ethics are unusually the most ethical in my book. It's the person that believes their ethics are absolute that I think is so dangerous. Advisors that say "I always put my client first" are the ones that usually sell the most expensive product. My goal with the piece I'll be writing is to get all of us planners to think about the conflicts between our compensation and the clients' wealth. I am not so blind that I think my hourly model is conflict-free.

I appreciate all of the feedback.

Anyone know where I can get a billion dollars so I can run the experiment 100 times?
Allan, I really can't figure out how the Ultimatum Game has anything to do with ethics.
I am the poster formerly known as Oneanddone.

Topic Author
Allan Roth
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Joined: Thu Sep 11, 2008 12:47 pm

### Re: Ultimatum Game - Your vote

P.S. I was trying to think of a good analogy and one just popped into my head. Is it unethical for you not to try to "get even" with someone who wrongly cuts you off on the freeway? I don't think it's my ethical duty to punish them in that situation, no less at great risk of loss to myself.
I see your point but doesn't this illustrate the fact that the cost of righting the wrong may be too high, such as causing an accident and going to jail. I suspect that if we had a button in our car that would anonymously fine the bad drive \$10, we would be pushing that button a lot. Also, what my wife and I consider to be bad drivers are two different things but let's not go there.

I'm defining ethics in a certain way and extending ethics to giving one the ability to right a wrong. All of this dialogue is very helpful and I admit I haven't studied ethics in a long time.

bertilak
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### Re: Ultimatum Game - Your vote

Allan Roth wrote:I'm defining ethics in a certain way....
Lewis Carroll had some fun with that!
"When I use a word," Humpty Dumpty said in rather a scornful tone, "it means just what I choose it to mean -- neither more nor less."
"The question is," said Alice, "whether you can make words mean so many different things."
"The question is," said Humpty Dumpty, "which is to be master - - that's all."
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

raisin mountaineer
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### Re: Ultimatum Game - Your vote

I'm confused a little by the question. My thought is that any time I was offered money, I'd be glad to accept whatever-- even for 50K, I'd smile and say thank you. I might be somewhat disappointed, but any amount is more than I had at first (zero) and the "fairness" question would be puzzling to me. I had no money before, and now I will have \$50K. The amount the other person has might tweak me a little, but having the money (however little) would be more important than "punishing" the other by taking his/hers away.

Although I admit, if it got down to an amount that I would not miss, say, in the next two weeks, then I might consider it. Anything below \$200, say. So maybe that's the point?

CaliJim
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### Re: Ultimatum Game - Your vote

Looking at the ethical question and playing Devil's Advocate.

Does "need" have a role to place in the qeustion of what is fair and compassionate?

It would be unethical for me to deny the other player any amount of money, without knowing his need.

Perhaps he has a disabled child, has no job, run's a poor orphanage, has a medical condition,.... and I am FI - financially independent.

In this situation, and he offered you a 1%/99% split, would you deny his good fortune out of spite and greed?

RenoJay
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### Re: Ultimatum Game - Your vote

I accidentally voted wrong. I meant to say "Less likely to reject" instead of "more likely to reject." Hell, \$2 million is pretty good cash...enough to hire the mafia to shake down the cheap jerk who screwed you and get another \$5-6 mil.

SamGamgee
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### Re: Ultimatum Game - Your vote

bigred77 wrote:This is really just a testament to a major flaw in economic theory which is the assumption that all people act rationally and logically.
Even in the 10 dollar game, if the second person is offered a dollar (or taken to the extreme, a penny) that person should logically accept because he is better off accepting it than the next best alternative, which is declining it and receiving nothing. All lot of modern day economic theory assumes the 2nd player will accept any offer made to him, every single time. This is obviously not the case in reality (as proved by this thread) because not everyone acts rationally at all times. And you wonder why our countries government economists aren’t exactly batting 1000?
I don't buy it. If somebody would rather teach the other player a lesson than have \$2 in their pocket, why is that irrational? Economics is built on the idea of utility, not the idolatry of money. People experience utility in whatever they desire, and their desires are shaped by social dynamics. To give an example, people value diamonds because diamonds are expensive, which is to say people value diamonds because people value diamonds. The social dynamic creates the value. Now, I may step back and say that wanting diamonds is dumb and irrational, but it's not irrational in the sense that economics doesn't work. Economics works just fine. Diamonds provide utility. So does spending a little cash to take money from someone who you don't think treated you fairly.

bertilak
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### Re: Ultimatum Game - Your vote

RenoJay wrote:I accidentally voted wrong. I meant to say "Less likely to reject" instead of "more likely to reject." Hell, \$2 million is pretty good cash...enough to hire the mafia to shake down the cheap jerk who screwed you and get another \$5-6 mil.
Now that's thinking one step ahead in this game!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet

NightOwl
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### Re: Ultimatum Game - Your vote

Two comments on this game:

1. Rejecting any amount of money seems irrational, but only if we're sure that the interaction won't be repeated and that knowledge of our actions won't be shared with other people with whom we regularly interact. If we have to interact with the "stranger" -- or anyone with knowledge of our choice -- in any important way ever again, there's some utility in establishing that we won't accept unfair offers. There's also some value in representing ourselves as people who value fairness regardless of price. For instance, if you asked me to play this game on a tv show with millions of people watching, I'm more likely (though of course not certain) to reject the \$2 million for several reasons, among which would be not wanting to "sell out" quite that publicly. No one would be likely to trust me as a person of principle again -- and there may be the connection with ethics. If you'll uphold a principle of "fairness" by angrily rejecting a \$2 offer, but you'll abandon your objections for \$2 million, then your principles are subject to market price and the rest of us can't necessarily count on you to stand by your stated principles under any and all circumstances.

2. I've heard that experimenters sometimes ask players to take a brief trivia quiz before engaging in the interaction. Players know each other's scores. When player 1 scores higher than player 2, player 2 is significantly more likely to accept an offer that is "unfair," i.e. less than half of the amount -- even though trivia knowledge is clearly unrelated to fair distribution of the money. Any sense that player 1 is "better" leads to a sense that he or she deserves more of the money. I find that fascinating.

NightOwl
"Volatility provokes the constant dread that some investors know more than we do, making us fearful of ignoring such powerful price movements." | Peter Bernstein, "The 60/40 Solution."