Looking Inside the Brains of the Stingy

New York Times, 27 February 2003
By Virginia Postrel

Here's a game economists play: Player 1 has $10 and can give any dollar amount to Player 2. Player 2 can either accept or reject it. If Player 2 accepts, they both keep the money. If Player 2 rejects it, neither player gets anything.

What should the players do? Arguably, Player 2 should accept whatever is offered, since some money is better than none. Player 1 should thus offer as little as possible: $1. That strategy is the standard game-theory equilibrium.

But that's not necessarily what happens when real people play this "ultimatum game" in laboratory settings with real money on the line. Faced with low-ball offers, many Player 2's reject them. And many Player 1's make more generous offers, often nearly half the money.

"About half the subjects that we observed played according to the way the game theory said people should play, and about half didn't," said Kevin McCabe, an economist and director of the Behavioral and Neuroeconomics Laboratory at George Mason University.

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