The Ultimatum Heuristic in Mixed-Motive Noncooperative Games

Abstract

Mixed-motive noncooperative games feature ambivalence in the competitive relation of the players and outcomes disobliging Nash equilibrium prescription. The Nash approach, ostensibly rational and self-maximizing, regularly advises strategy many players regard as counterintuitive or faulty. And players often end up better off overall doing something else, yet no theory has explained what transpires or why. This paper presents evidence of an Ultimatum heuristic guiding mixed-motive decision-making. A solution concept backsolved from these findings shows promise for forecasting and deciphering behavior, supplanting backwards induction, and alleviating need to sort multiple Nash equilibria. This Ultimatum tendency is discernable in graphical plots of a game and hinges on focal point geometry. When payoff structure is varied systematically or nearly so, a signature pattern of results unfolds across the outcome space of possibilities. This discovery opens the way to a straightforward solution of the classic mixed-motive game, prisoner’s dilemma.