Emotions and strategic behaviour: The case of the Ultimatum Game

Abstract

Human behaviour in economic interactions has attracted an increasing amount of attention over the last decades. The economic assumption that people would behave focusing on their own material self-interest was proved incomplete, once the empirical evidence consistently showed that many other motives may influence such behaviour. Therefore, models that can incorporate rational decision process as well as other intervening factors are a key issue to both understand the observations from economic experiments and to apply the lessons learned from them. In this paper, we incorporate the influence of emotions to the utility function in an explicit manner, using the Ultimatum Game as a case study. Our model is amenable to analytical study, and is connected with the Circumplex model of emotions and with Kahneman's two-system theory. The simplicity of the model allows to obtain predictions for the offers and acceptance thresholds. We study two specific examples, when the model parameters are distributed uniformly or normally, and show that in the latter case the results are already qualitatively correct. Although this work can be considered as a first approach, it includes what we believe are the main stylized facts, is able to qualitatively reproduce experimental results in a very simple manner, and can be straightforwardly extended to other games.