On Varying the Stakes in Ultimatum Games (2011)

Steffen Andersen, Seda Ertaç, Uri Gneezy, Moshe Hoffman, and John A. List, “Stakes Matter in Ultimatum Games.” American Economic Review 101: 3427–3439, December 2011.

• A standard result is that varying the stakes does not lead to much of a change in the outcomes of ultimatum game (and related game) experiments. The ultimatum game is of interest in itself, but also because it seems to hold lessons for any “take-it-or-leave-it” bargaining situation. 

• Andersen et al. (2011) challenge this standard result. In particular, they hope to see if “proposers” offer more “unfair” splits when the stakes are high, and if responders turn down unfair splits, even when the stakes are significant.

• In the reported experiments, conducted in villages in India, the stakes are altered by a factor of 1000. The highest-stake version is on the order of one-year’s income. 

• The ultimatum game that the authors employ is structured in such a way as to nudge proposers into making “unfair” offers. Otherwise, the experimenters suspect that there will not be enough unfair offers to test reliably the willingness of responders to turn down unfair offers at high stakes. (The ultimatum game as it is typically implemented has its own share of nudge issues.) 

• In the experiments, raising the stakes monotonically decreases the average percentage of the pie “offered,” though the absolute monetary amount offered increases. At the highest stakes, there is but one rejection in 24 trials. Nevertheless, at the second-highest level of stakes (about one-month's income), more than one-quarter of the proposals are rejected.

• Is it ethical to go to relatively poor villages and offer some people the potential for one year's or one month's income -- along with the (likely) prospect that some of those selected people will proceed to "lose" that stake, after being nudged towards an "unfair" offer that raises the probability of their receiving nothing? Behavioral economics experiments sometimes challenge the Kantian precept that people are to be treated as ends in themselves, not means to the ends of others.