THE ULTIMATUM GAME AND ECONOMIC IRRATIONALITY.

THE ULTIMATUM GAME AND ECONOMIC IRRATIONALITY. Behavioral economists are happy to find examples of economic irrationality. This article on neuroeconomics describes the “ultimatum game”: “one player proposes a division of a sum of money between himself and a second player. The other player must either accept or reject the offer. If he rejects it, neither gets a penny.” The significance of the ultimatum game, as the article points out, is that: “According to standard economic theory, as long as the first player offers the second any money at all, his proposal will be accepted, because the second player prefers something to nothing. In experiments, however, behavioural economists found that the second player often turned down low offers—perhaps, they suggested, to punish the first player for proposing an unfair split.” Players who punish are considered to be economically irrational because they prefer nothing to something.