ON EXPECTATIONS AND THE MONETARY STAKES IN ULTIMATUM GAMES

In an ultimatum game, player 1 makes an offer of $X from a total of $M to player 2. If player 2 accepts the offer, then player 1 is paid $(M -X) and player 2 receives $X; if player 2 rejects the offer, each gels zero. In the ultimatum game experiments reported in the literature, M is typically not more than $10 (see Forsythe, Horowitz, Savin and Sef ton, 1994, hereafter FHSS; Hoffman, McCabe, Shachat and Smith, 1994, h ereafter HMSS, and the literature cited therein). We report new result s for 50 bargaining pairs in which M = S100, and compare them with pre vious outcomes from 48 pairs with M = $10. The need for an examination of the effect of increased stakes on ultimatum bargaining is suggeste d by a literature survey of the effect of varying the stakes in a wide variety of decision making and market experiments over the last 33 ye ars (Smith and Walker, 1993b). Many cases were found in which the pred ictions of theory were improved when the monetary rewards were increas ed. There were also cases in which the level of monetary rewards had n o effect on the results. Consequently, it is necessary to examine the stakes question on a case by case basis. The previously reported effec t of instructional changes, which define different institutional conte xts, on ultimatum game outcomes, and the effect of stakes reported her e, suggest a game formulation that explains changes in the behavior of both players as a result of changes in the instructional treatments. We formulate such a model and indicate how it might be further tested.