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One person offers a share of a known quantity, say, $100, to a second. The second person knows that they can accept or reject the offer. If player 2 accepts, both receive the reward in the agreed proportion. If the second player rejects the offer, both receive nothing.
Just because I know you love graphs...
From Gamelab, Harvard:
Number of players: 30 (15 games)
Mean proposal: 39 ± 10.7
Distribution of proposals:
The vast majority (73%) offers 40 or 50 points.
Surprisingly one offer of 40 is rejected
The rational strategy is to offer 1 point, and to accept everything. In reality, offers below 30% get mostly rejected. In a vast majority of studies conducted with different incentives in different countries, some 60-80% of proposers offer between 40% and 50% of the total sum, and only 3% of proposers offer less than 20%. Conversely, some 50% of responders reject offers below 30% of the total.
The 'rational', material, utility-maximising response for the proposee is to accept anything offered, even one unit out of 100.
People don't. There appears to be a payoff in depriving the maker of an unfair offer of his/her share, even at cost to oneself.
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