The Ultimatum Game: Optimal Strategies without Fairness

Abstract

The Ultimatum game is simple and this facilitates its use in the study of predictions of game theory. Experimental evidence suggests that it doesnot predict individual behavior well unless individuals gain welfarefrom fairness in transactions or have expectations about some widergame. Our model excludes any notion of fairness by including (potential)rivalry in transactions. In this game the proposer's expectations yieldoutcomes that are consistent with experimental evidence. Offers can belarge or small with none in an intermediate range. The consequent distribution appears in Dictator game experiments. Our model explains how it is generated by expectations.