Ultimatum Game and Dictator Game

Last Updated on 28. April 2023 by Martin Schuster

Imagine a game where person A has 1 EUR. He can share it with person B. It is up to him how he does it. Anything between 0.01 EUR to 1 EUR is fine. B can accept or reject the offer. If B rejects the offer, neither A nor B receive a pay-off.  How would A share the 1 EUR among himself and B?

From a rational standpoint, A would grant B an amount of 0.01 EUR. And B would happily accept it. If B rejected the offer, he would receive nothing.

This can be traced by backward induction.

In reality, however, people tend to share more equally. A reason could be altruism or the fear that B doesn’t act rationally and rejects the offer because he thinks this is unfair.

The Dictator game is similar to the ultimatum game. But here, B cannot reject the offer. He has to accept everything, A offers. This game helps to measure altruism.