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The Ultimatum Game

Is a game in economic experiments to provide key insights into the pshycological behaviour of an individual.

It works by one player being offered a sum of money. Immediately afterwards they are required to make a second player an offer and if that player accepts the offer he must hand over the amount prescribed in the offer, leaving the original player with the left-overs. However, if the second player rejected the offer because it was too low then both players walk away with nothing. So the first player needs to offer the second player an offer that he will not be able to refuse. However, economic theory suggests that the game should be played by the first player offering the second player $1 and he should then accept it. As it would be the lowest amount the first person can give away and the second player will not turn any offer of money down, making it a mutually beneficial offer. But often a perception of fairness evolves and takes over and the first player offers the second player a much fairer allocation of the sum of money. This is shown in the logical sequence below.


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