The ultimatum game: Optimal strategies without fairness

The ultimatum game is simple and this facilitates its use in the study of p redictions of game theory. Experimental evidence suggests that it does not predict individual behavior well, unless individuals gain welfare from fair ness in transactions, or have expectations about some wider game. Our model excludes any notion of fairness by including (potential) rivalry in transa ctions. In this game the proposer's expectations yield outcomes that are co nsistent with experimental evidence. Offers can be large or small, with non e in an intermediate range. The consequent distribution appears in dictator game experiments. Our model explains how it is generated by expectations. Classification Numbers: C72, D82, D84. (C) 1999 Academic Press.