The Ultimatum game: A Utilitarian Approach

Game theory, and in particular the ultimatum game, has been explored by many economists in various different ways. Some claim it is due to fairness and manners that significantly different results arise in reality when compared to theory. Without disproving these findings, it is my intent to show the reader that the ultimatum game can be looked at using a different light. Using a utility function that takes equality in wealth and payoff into account, various scenarios are depicted in which an offer will be accepted. Proposers will offer more than half of the figurative pie if they feel they are economically more advantaged in comparison to the responder. When the wealth levels are comparable, the proposer offers slightly less than the responder. It is only when the responder is much wealthier that the proposer chooses to offer less than a third of the pie. After the calculations, the utility function is further explained and applied to these varying situations. Limitations and explanations about rejected offers are given in the latter part of this thesis.