SSE/EFI Working Paper Series in Business Administration,
Stockholm School of Economics

Abstract: The starting point of this article is the result of one ultimatum game experiment - one of many showing a huge deviation from the predictions of micro theory. However, further analysis gives an explanation of subject behavior that deserves to be seen as rational, if assumptions, such as a total secrecy resulting in no effects on reputation, are questioned. Responders' actual behavior can be understood as adjusted to generally realistic reputation effects, and the choices of the Proposers are surprisingly attuned to actual Responder demands. If seen in this light, the subjects seem to understand the situation and behave accordingly.

Keywords: Ultimatum; buffer; reputation; spite; altruism

11 pages, First version: April 29, 1999. Revised: January 10, 2002.

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