l

The Ultimatum Game is a simple game in which two players attempts to split a $100 reward. They can communicate with each other for 10 minutes, after which:

Player 1 proposes an integer split (e.g. $75 for Player 1, $25 for Player 2)
Player 2 may Accept or Reject this split. If Player 2 rejects, both players receive nothing. Otherwise, the money is distributed according to the agreed-upon split.

At first glance, the mathematical analysis is simple: Player 2 should always accept (since anything is better than nothing), so Player 1 should offer a 99-to-1 split to maximize their winnings.

Much of the commentary around this game revolves around the fact that when you play this game with humans, Player 2's sense of "fairness" will cause them to "irrationally" reject sufficiently imbalanced splits.

But this post isn't about people's feelings. It's about rational agents attempting to maximize wealth. (I don't doubt that all these ideas have been discussed before, though in most LW posts I found with this game in it, the game itself is not discussed for more than a paragraph or two).

A Veto is a Powerful Bargaining Chip

If you're Player 2 and you want to walk away with more than $1, what do you do?

It's pretty simple, actually - all you need to do is to immediately communicate to Player 1 that you've sworn an Unbreakable Vow that you will reject anything other than a 99-1 split in your favor. (Or, more practically, give Player 1 a cryptographic proof of a cryptographic contract that destroys $1000 if you accept anything other than 99-1.) And just like that, the tables are turned. Player 1 now gets to decide between walking away with $1 or walking away with nothing.

This style of play involves reducing your options and committing to throwing away money in a wide variety of scenarios. But against a Player 1 who's as naive as the original analysis's Player 2, it works. It's the madman theory of geopolitics - sometimes the best move is to declare yourself crazy.

Examples

This game corresponds fairly directly to the idea of economic surplus: in a positive-sum transaction, both sides want the transaction to go through, but there remains the lingering question of how to split the surplus.

I unfortunately read the news a lot, so I see a lot of big companies and governments getting into fights with this shape.

Apple vs Epic Game

...

Posts

Wikitag Contributions

Comments