The ultimatum game

From Surowiecki’s story on why people got so upset over Dick Grasso’s huge paycheck.

Take two people. Give them a hundred dollars to split. One person (the proposer) decides, on his own, what the split should be (fifty-fifty, seventy-thirty, or whatever) and makes the other person a take-it-or-leave-it offer. If he accepts the deal, both players get their share of the money. If he rejects it, both players walk away empty-handed.

The rational thing for the second person to do is to accept the offer, whatever it is, since even one dollar is better than nothing. But in practice this rarely happens. Instead, lowball offers are almost always rejected. Apparently, people would rather throw away money than let someone else walk away with too much.

Remember, fairness is not equality.

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