Dictator game

In social psychology and economics, the dictator game is a popular experimental instrument that is a derivative of the ultimatum game. It involves a single decision by the "dictator" player: given an amount of money, how much to keep and how much to send to another player. Although the "dictator" has the most power, the game has mixed results based on different behavioral attributes. The results – where most dictators choose to send money – evidence the role of fairness and norms in economic behavior, and undermine the assumption of narrow self-interest when given the opportunity to maximise one's own profits.

The dictator game is a derivative of the ultimatum game, in which one player (the proposer) provides a one-time offer to the other (the responder). The responder can choose to either accept or reject the proposer's bid, but rejecting the bid would result in both players receiving a payoff of 0. In the dictator game, the first player, "the dictator", determines how to split an endowment (such as a cash prize) between themselves and the second player (the recipient). The dictator's action space is complete and therefore is at their own will to determine the endowment, which ranges from giving nothing to giving all the endowment. The recipient has no influence over the outcome of the game, which means the recipient plays a passive role.

While the ultimatum game is informative, it can be considered an over simplified model when discussing most real-world negotiation situations. Real-world games tend to involve offers and counteroffers while the ultimatum game is simply player one placing forward a division of an amount that player 2 has to accept or reject. Based on this limited scope, it is expected that the second player will accept any offer they are given, which is not necessarily seen in real world examples.

The initial game was developed by Daniel Kahneman in the 1980s and involved three parties, with one active and two passive participants. However, it was only in 1994 that a paper by Forsythe et al. simplified this to the contemporary form of this game with one decision-maker (the dictator) and one passive participant (the recipient). One would expect players to behave "rationally" and maximize their own payoffs, as shown by the homo economicus principle; however, it has been shown that human populations are more "benevolent than homo economicus" and therefore rarely do the majority give nothing to the recipient.

In the original dictator game, the dictator and the recipient were randomly selected and completely unknown. However it was found that the result was different depending on the social distance between the two parties. The level of "social distance" that a dictator and a recipient have changes the ratio of endowment that the dictator is willing to give. If the dictator in the game has anonymity with the recipient, resulting in a high level of social distance, they are most likely to give less endowment, whereas players with a low level of social distance, whether they are very familiar with each other or shallowly acquainted, are more likely to give a higher proportion of the endowment to the recipient.

When players are within an organization, they are likely to have a low level of social distance. Within organizations, altruism and prosocial behavior are heavily relied on in dictator games for optimal organizational output. Prosocial behavior encourages the "intention of promoting the welfare of the individual, group, or organization toward which it is directed".

In 1988, a group of researchers at the University of Iowa conducted a controlled experiment to evaluate the homo economicus model of behavior with groups of voluntarily recruited economics, accounting, and business students. These experimental results contradict the homo economicus model, suggesting that players in the dictator role take fairness and potential adverse consequences into account when making decisions about how much utility to give the recipient. A later study in neuroscience further challenged the homo economicus model, suggesting that various cognitive differences among humans affect decision-making processes, and thus ideas of fairness.

Experimental results have indicated that adults often allocate money to the recipients, reducing the amount of money the dictator receives. These results appear robust: for example, Henrich et al. discovered in a wide cross-cultural study that dictators allocate a non-zero share of the endowment to the recipient. In modified versions of the dictator game, children also tend to allocate some of a resource to a recipient and most five-year-olds share at least half of their goods.