Roth et al (1991) - Bargaining and Market Behaviour Flashcards
To recall the facts, figures and conclusions for this paper on the Ultimatum Game (16 cards)
What two equilibria does game theory predict for the Ultimatum Game?
1) The proposer makes the smallest non-zero offer possible; or
2) The proposer makes an offer equal to zero
Both of these get accepted.
What is the goal of the paper (HINT: there are two)?
To investigate whether behaviour in bargaining and market experiements displays significant cross cultural variations.
To see if repeated interactions push outcomes towards eqm predictions regardless of cultural context.
What is the set-up and methodology of this paper?
Two players: proposer and the responder
There is a kitty of N dollars to be divided between them
The proposer offers the responder a share of the kitty.
The responder must accept or reject.
If ther responder accepts, then the two players recieve material payoffs of (1-s)N dollars (proposer) and sN dollars (responder) respectively
That the responder rejects, then both players recieve material payoffs of 0 dollars - which is an inefficient outcome as all the money is left on the table.
What are the key assumptions of the Ultimatum game?
1) The game is common knowledge (so there is no deception)
2) That the players are rational
What two types of experimental scenarios were used in Roth et al.’s study?
The ultimatum (bargaining) games and market simulations
According to game theory, what should a rational responder do in the ultimatum game?
Accept any non-zero offer
Which country showed the greatest divergence from the US results in the ultimatum game? And how did the differ?
Israel - these were consistently low (below 50% even in Round 1)
What was observed about the range of offers as rounds progressed?
The range of offers narrowed and became more consistent as rounds progressed?
Why were low offers (as predicted by theory) rejected in the experiments?
Because material payoffs are not equal to utility - and it is hypothesised that fairness considerations factor into utility
What trend as observed in market sessions across cultures? And did cultural differences persist in market scenarios?
Convergence toward competitive equilibrium predictions over repeared rounds.
While some differences remained (e.g. speed of convergence), competitive forces largely dominated cultural differences
What was the key difference observed between one shot interactions and repeated market interactions?
One shot/short run interactions were significantly influenced by cultural factors, while repeated market interactions mitigated these differences.
What sampling limitations was noted in the study?
Participants were only students in each city, making it difficult to generalise results to entire populations
What light did this study shed on market efficiency across cultures?
It suggested that while one shot bargaining might result in culturally influenced inefficiencies, competitive markets tend toward efficiency across cultural contexts through learning and adaptation
How did the frequency of rejected offers compare across countries?
Israeli markets had the highest rejection rates, followed by Japenese, while American and Yugoslavian markets had lower rejection rates
What was the relationship between market experience and ultimatum behaviour?
Market experience did not eliminate “fairness” considerations in ultimatum fames, suggesting those concerns are robust even among market-experienced participants.
