Lecture 59 Ultimatum & Public Goods Games

Fair Farmers, Self-Interested Students

• Farmers in Kenya and students in US
• 90% of farmers will say no to 20% offer
• No one accepted 0% offer

Punishment Game

• E: Evenly divided money (10,10)
• U: Unevenly divided money (18,2)

Given the choice… would you evenly split $12 with U or $10 with E?

• 81% chose to share with E (fair allocator)… willing to take smaller $5 to punish the U.

Public Goods Games

• Free riding = benefiting from contributions to some cooperative project without contributing oneself
• When one farmer contributes $10 \(\to\) each gain $8
• public good = one individual bears a cost to provide the good \(\to\) everyone receives the benefit
• Two properties of public goods
  1. Non-excludable
  2. Non-rivalrous

Kim makes more money if she doesn't contribute to the irrigation project. \(\to\) Prisoners' dilemma with multiple players

• Dominant strategy = where no one contributes and payoffs are zero.