School of Economics and Finance

No. 502: On the Behavior of Proposers in Ultimatum Games

Thomas Brenner , Max Planck Institute, Jena
Nicolaas J. Vriend , Queen Mary, University of London

October 1, 2003

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We demonstrate that one should not expect convergence of the proposals to the subgame perfect Nash equilibrium offer in standard ultimatum games. First, imposing strict experimental control of the behavior of the receiving players and focusing on the behavior of the proposers, we show experimentally that proposers do not learn to make the expected-payoff-maximizing offer. Second, considering a range of learning theories (from optimal to boundedly rational), we explain that this is an inherent feature of the learning task faced by the proposers, and we provide some insights into the actual learning behavior of the experimental subjects. This explanation for the lack of convergence to the subgame perfect Nash equilibrium in ultimatum games complements most alternative explanations.

J.E.L classification codes: C72, C91, D81, D83

Keywords:Ultimatum game, Non-equilibrium behavior, Laboratory experiment, Multi-armed bandit, Optimal learning, Gittins index, Bounded rationality