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Game examples

The 100 Euro game

Several players write down a number between 1 and 1000. The one who wrote down the highest number is the winner. The height of the prize is determined by dividing 100 Euros by the number that was written down.
Most of the times, the winner is not awarded more than a few Euros.

The student-dilemma

The teacher offers the students to award them extra points for their studying success under defined conditions. In order to get the extra points, they have to write down whether they would prefer to get three or seven extra points.
He promises that everyone will get what he wrote down, as long as less than 40% of the class wished for 7 points. If the latter case occurs, no extra points will be awarded.

The Euro-auction

20 Euros are auctioned. The highest-bidding gets the 20 Euros. The second placed bidder has to pay his bid too, but does not receive anything for it.

In this game, the second placed bidder has a high incentive not to be fooled and pay a high bid for nothing, so occasionally 50 Euros and more are bidden for the 20 Euros. The second placed often goes on bidding, even if less than the bidden amount of money can be won.
The optimal strategy in this game is not to bid at all, or to be the only one who bids. Or: nobody is willing to bid beyond rather low bids.

Quite often, emotion plays a bigger role in this regard than the actual loss of money. Players who have lost once often try to make up for their loss in repeated game rounds, which, usually, makes them even worse off. Involvement generates further involvement. The more is lost, the higher the need to make up for the losses (escalating commitment).

Murninghan, Keith J. (1992) Bargaining Games. A new approach to strategic thinking in negotiations. W. Murrow, University of Michigan.

The Ultimatum game

"Irrationalities", such as emotions, play an important role in fairness-related social dilemmas. A homo oeconomicus usually acts under "bounded rationality".

In the ultimatum game, a bigger amount of money is given to one of the participants on condition that part of it is given to another player (who is informed about the course of the game). This other player has to accept the offer as legitimate. If the co-player refuses the amount because it seems too low to him, also the first actor receives nothing.

Even if - following the principle of the homo oeconomicus - it would actually be rational for the co-player to accept every conceivable amount of money (even one Cent is more than nothing), experiments show that humans from the European cultural circle usually are only willing to accept an offer that comes close to the 50% margin. They behave in distinctly different ways from the economic ideal type of the homo oeconomicus.

The trust game

Of two players one is randomly chosen to take the role of the investor and the other one is chosen to be the trustee. The investor receives a defined amount of money (e.g. 10 Euros) from the game leader and can now invest the money. Investing means giving the total amount, parts of it, or nothing to the trustee. Whatever the trustee receives will be multiplied by the factor \(1 + r\) (often \(r=2\), meaning that the amount is tripled) by the game leader. The trustee can then give the whole amount, parts of it, or nothing back to the investor.
The game is played double blind, meaning that investor, trustee and game leader remain absolutely anonymous, and every participant knows that. Hence, no player thinks about paybacks at a later point by eventual denials of payments. Furthermore, all the players are informed about the course of the game.

Experiments show, that investors investing more than half of their money (i.e. more than 5 Euros), usually get back more than they invested. The ones investing less than 5 Euros tend to get back a significantly lower amount. A lack of trust therefore usually is reflected by the trustees. On average, investors having the most trust usually do best in this game.

Berg, Joyce / Dickhaut, John / McCabe, Kevin (1995) Trust, Reciprocity and Social History. Games and Economic Behavior 10(1), p. 122-142.

The employer-employee game

The experimental subjects are randomly divided into two groups with different sizes and separated in two rooms where they cannot see the other group and cannot directly communicate with them. The bigger group - without knowing it - represents the employees. Once they accept the wage offer of a representative of the other group (the employer group), they are hired and have to perform their work in form of a part of their wage. They can decide on the size of the part on their own, but there is a defined minimum.
The employers start the game by offering wages to the employees on the phone. The height of these offers can be chosen by the employers, but it has to exceed a defined minimum wage. There are more employees than employers; hence there is an oversupply of employees. Whoever out of the group of employees accepts an offer first, receives a binding contract and is hired.
In a second step, the employees are asked to decide how much they are willing to work beyond the minimum performance for their wage. Their performance offer remains anonymous and does not have consequences or lead to sanctions.

Following neoclassical assumptions, both employers and employees should try to minimize their costs in this experiment, i.e. offer as little wage and performance as possible. Moreover, the employees are forced to quickly accept a wage offer, knowing that there is the possibility of getting nothing. The employers can take advantage out of this behavior and can offer only the minimum wage.

However, experiments show that on average employers offer 40% more than the minimum wage, and also the employees' performance is four times as high as predicted by the standard theory of the homo oeconomicus.

Fehr, Ernst / Kirchsteiger, Georg / Riedl, Arno (1993) Does Fairness Prevent Market Clearing? An Experimental Investigation. Quarterly Journal of Economics CVIII. p. 437-460.