Classical economic models assume that people are fully rational and selfish, while experiments often point to different conclusions. A canonical example is the Ultimatum Game: one player proposes a division of a sum of money between herself and a second player, who either accepts or rejects. Based on rational self-interest, responders should accept any nonzero offer and proposers should offer the smallest possible amount. Traditional, deterministic models of evolutionary game theory agree: in the one-shot anonymous Ultimatum Game, natural selection favors low offers and demands. Experiments instead show a preference for fairness: often responders reject low offers and proposers make higher offers than needed to avoid rejection. Here we show that using stochastic evolutionary game theory, where agents make mistakes when judging the payoffs and strategies of others, natural selection favors fairness. Across a range of parameters, the average strategy matches the observed behavior: proposers offer between 30% and 50%, and responders demand between 25% and 40%. Rejecting low offers increases relative payoff in pairwise competition between two strategies and is favored when selection is sufficiently weak. Offering more than you demand increases payoff when many strategies are present simultaneously and is favored when mutation is sufficiently high. We also perform a behavioral experiment and find empirical support for these theoretical findings: uncertainty about the success of others is associated with higher demands and offers; and inconsistency in the behavior of others is associated with higher offers but not predictive of demands. In an uncertain world, fairness finishes first.
Friday, February 22, 2013
In an uncertain world, fairness finishes first.
I usually get hopelessly lost in accounts of variations of the ultimatum game used to model human behavior and its evolutionary rationale or origins. This experiment by Rand et al. seems relatively clear and crisp: