This essay argues that competition has an effect on social preferences. Two playered bargaining game is called as an ultimatum game(UG).The results of which are compared to the results of experiments in which there are more than two players, where competition exists. References to agents as 'he' is for ease of reading. All references to figures can be found in the appendix.
Schotter and Sopher define the UG as "an extreme type of bargaining game in which an offer is made by one person and either accepted or rejected by another" (2005, 3). Güth, Schmittberger and Schwarze (1982) explained that a Proposer announces a split of money M between himself and a Responder. The Responder can then accept or reject the offer x. If the Responder accepts, he earns x and the Proposer earns M-x. If rejected both players earn zero.
The UG analyses whether Responders will reciprocate by punishing an unfair Proposer (and in turn themselves). Here we define 'fairness' as whatever is considered as a fair split of the sum of money M, specific to the country in which the experiment is conducted.
If M=100 money units and is divisible in 1 unit amounts then the Self-Interest Hypothesis (SIH) predicts that the equilibrium amount that the Proposer should offer the Responder is 1. The Proposer, a selfish and rational "homo economicus" (Vilfredo, 1906) knows that any positive amount should be accepted by the Responder since any positive amount makes the Responder better off. He takes advantage of this, offering the Responder the smallest possible amount expecting the Responder to accept.
The proposer presumes that the responder would rather earn something than nothing. Therefore the proposer is predicted to keep the majority of the money.
[...] In a competitive environment players' social preferences appear to align with the SIH, as predicted. Figure 2 (1991, 1076) supports this, presenting 3 separate experiments for two different markets (A and B). They set M=1000 and bids are made in 5 money unit intervals. Figure 3 is a recreation of market A. The line-graphs show that the equilibrium of 995 is reached on average by period 4 for all three experimenters. Whilst both the original UG and the competitive UG both predict one player to receive most of M, added competition predicts the Responder to gain most. [...]
[...] Does competition affect social preferences in the context of a bargaining game? Discuss This essay argues that competition has an effect on social preferences[1] in a simple, two playered bargaining games called an ultimatum game (UG). The results of which are compared to the results of experiments in which there are more than two players, where competition exist. References to agents as ‘he' are for ease of reading. All references to figures can be found in the appendix. Schotter and Sopher define the UG as “an extreme type of bargaining game in which an offer is made by one person and either accepted or rejected by another” (2005, 3). [...]
[...] Furthermore, these competitive equilibria are as predicted and appear robust. Bibliography Camerer, C. and Fehr, E. (2002) Measuring Social Norms and Preferences using Experimental Games: A Guide for Social Scientists, Institute for Empirical Research in Economics, Working Paper No. 97. Fischbacher, U., Fong, C. M., and Fehr, E., (JEBO, 2009), “Fairness, errors and the power of competition”, Journal of Economic Behavior and Organization, vol. 72, pp. 527-545. Güth, W., Schmittberger, R., and Schwarze, B., (JEBO, 1982). An experimental analysis of ultimatum bargaining, Journal of Economic Behavior and Organization, vol. [...]
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