A paper by Orestis Vravosinos (Economics ’18, UPF MRes in Economics ’19) and Kyriakos Konstantinou (LSE) has just been published in the Review of Behavioral Economics. Below is an overview of the paper.
The Ultimatum Game
Given that in experiments ultimatum game outcomes are often significantly different from Nash equilibrium predictions under standard assumptions on preferences, many studies have examined the impact of fairness on players’ considerations and how the effect of the sense of fairness on players’ actions may vary, while other factors change. It has been argued that increased stakes (larger sum of money distributed) can reduce sensitivity to fairness of player 2 making it more likely that she accepts lower shares of the total sum, thus, giving player 1 the opportunity to offer a lower share.
Social distance has also been found to affect fairness. In the existing literature, social distance commonly varies only from players being close relatives or friends to complete strangers, even though negatively-valenced relationships can be important from an economic point of view. Our study aims to fill this gap by introducing negatively-valenced relationships between the players. We argue that altruistic and empathetic behavior of the proposer towards the responder may not vary (increase) as significantly in the region of negative relationships compared to the region of positive relationships. Similarly, social distance effects stemming from reciprocity may vary less in the region of negative relationships. Thus, we hypothesize that in the ultimatum game social distance effects are asymmetric with their magnitude varying more in the spectrum of positively compared to negatively-valenced relationships.
Our experimental results support this hypothesis; in the region of positively-valenced relationships, the proposers increase the percentage they offer as relationship quality increases more drastically compared to when the relationship is negatively-valenced, in which case they appear more invariant to relationship effects. Also, by eliciting a minimum share which the responder is willing to accept out of the total sum, we provide clearer results on the social distance and stakes effects on the latter’s behavior. Last, we find a negative effect of relationship quality on the minimum acceptable share. This contradicts a strand of the literature which suggests that closer-“in-group” individuals may be punished more severely, so that cooperation in a group is maintained.
Orestis Vravosinos and Kyriakos Konstantinou (2019), “Asymmetric Social Distance Effects in the Ultimatum Game”, Review of Behavioral Economics: Vol. 6: No. 2, pp 159-192.