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Economics Research International
Volume 2013 (2013), Article ID 470412, 8 pages
http://dx.doi.org/10.1155/2013/470412
Research Article

Information in Repeated Ultimatum Game with Unknown Pie Size

Department of Decision Sciences and Managerial Economics, Faculty of Business Administration, The Chinese University of Hong Kong, Hong Kong

Received 24 August 2012; Revised 15 November 2012; Accepted 27 November 2012

Academic Editor: Philip J. Grossman

Copyright © 2013 Ching Chyi Lee and William K. Lau. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Within existing literature, it is well known that people’s behavior in ultimatum game experiments cannot be explained by perfect rationality model. There is, however, evidence showing that people are boundedly rational. In this paper, we studied repeated ultimatum game experiments in which the pie size is only known to the proposer (player 1), but the transaction history is made known to both players. We found that subject’s behavior can be very well explained by the history-consistent-rationality model (HCR model) of Lee and Ferguson (2010), which suggests that people’s behavior is affected by what they observed in the past. The HCR model is able to yield point predictions whose errors are on average within 5% of the total pie size. The experimental results provide evidence that subjects' behavior is boundedly rational with respect to the transaction history.