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People Care About Fairness The ultimatum game works like this: Two volunteers (who are otherwise strangers to each other) are told that they are going to play a game and could win a total of $100.

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Before they play, they learn the rules.

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The game begins with a coin toss, which is used to assign the volunteers to the roles of player A and player B.

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Player A’s job is to propose a division of the $100 prize between himself and the other player.

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After player A makes his proposal, player B decides whether to accept or reject it.

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If he accepts it, both players are paid according to the proposal.

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If player B rejects the proposal, both players walk away with nothing.

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In either case, the game then ends.

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Before proceeding, stop and think about what you would do in this situation.

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If you were player A, what division of the $100 would you propose?

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If you were player B, what proposals would you accept?

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Conventional economic theory assumes in this situation that people are rational wealth–maximizers.

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This assumption leads to a simple prediction: Player A should propose that he gets $99 and player B gets $1, and player B should accept the proposal.

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After all, once the proposal is made, player B is better off accepting it as long as he gets something out of it.

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Moreover, because player A knows that accepting the proposal is in player’s B interest, player A has no reason to offer him more than $1.

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In the language of game theory, the 99-1 split is the Nash equilibrium.

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Yet when experimental economists ask people to play the ultimatum game, the results are very different from this prediction.

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People in the role of player B usually reject proposals that give them only $1 or a similarly small account.

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Knowing this, people in the role of player A usually propose giving player B much more than $1.

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Some people will offer a 50-50 split, but it is more common for player A to propose giving player B an amount such as $30 or $40, keeping the larger share for himself.

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In this case, player B usually accepts the proposal.

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What’s going on here?

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The natural interpretation is that people are driven in part by some innate sense of fairness.

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A 99-1 split seems so wildly unfair to many people that they reject it, even to their own detriment.

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By contrast, a 70-30 split is still unfair, but it is not so unfair that it induces people to abandon their normal self–interest.