International Advances in Economic Research

, Volume 19, Issue 1, pp 1–10 | Cite as

A Note on the Ultimatum Paradox, Bounded Rationality, and Uncertainty

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Abstract

The ultimatum game is a sequential-move bargaining game in which a giver offers a taker a share of a monetary pie. The predicted subgame perfect equilibrium in the ultimatum game is for purely rational givers who act in their own narrow self-interest to offer the smallest possible share of a monetary price, and for purely rational takers to accept. Experimental trials suggest, however, that givers make generous offers because they have a taste for fairness. The analysis presented in this paper argues that it is in the best interest of givers of any type to make offers that will not be rejected, and that offers become more generous as a giver’s uncertainty about the taker’s reservation offer increases.

Keywords

Ultimatum game Fairness Pure rationality Bounded rationality Uncertainty 

JEL

C70 C72 C78 D03 

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Copyright information

© International Atlantic Economic Society 2012

Authors and Affiliations

  1. 1.Department of Finance & EconomicsPace University, Lubin School of BusinessNew YorkUSA

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