The Ultimate Game

Day 175 / 365

Let me explain a simple game for you. There are 2 players, you and another one. You will be given 100$ and then you will have the freedom to share it with the other player in whatever way you seem fit. After you have made the choice, it’s now up to the other player to accept it or reject it. If he accepts it, the money is distributed according to your choice. However, if he rejects it, you both get nothing. What do you do?

The game described above is known as the ‘Ultimate Game’, and it was quite popular in economics.

Let’s think about it. Of course, you would want to get as much money as possible. But if you wish to keep all of it, and give nothing to the other player, he will surely reject your choice and you will both get nothing. If common sense prevails, your best bet would be to keep 99$ and give 1$ to the other player. Now the other player can choose to keep the dollar, or reject the offer and get nothing. Surely he would choose to keep the dollar.

At least that’s what you would expect to happen in an ideal world. When this experiment was actually conducted, it was found that most people offered fair spits (around 50–50). Offers of less than 30% of the cash were mostly rejected. That’s right, most people would choose to get nothing than to be offered 30$ if it means the other person getting 70!

This experiment shows that our decision making is quite complex, and doesn’t solely rely on a mathematical calculation of profit or loss. It could be a power play as well, as the second player realizes he has the power to deprive the first one of any money, and exercising that power gives them some control and satisfaction! More than anything these games shows our reluctance to accept injustice.

This post is part of my 365 Day Project for 2019. Read about it here

Yesterday’s blog — Clever Hans