The Ultimatum Game and Divorce Negotiations

By Attorney Gregg Herman
June 1, 2013

The Ultimatum Game is a two player, two move, finite game.  Each player makes one move and the game is over.  The game works as follows: A sum of money is made available, say ten dollars.  Player A makes a proposal on how to divide the money with the other player,   Player B then either accepts or rejects the proposal.  If Player B accepts the proposal, the ten dollars is divided accordingly.   If player B rejects the proposal, the money is withdrawn and neither player gets anything.  Either way, there is no negotiating.   The offer is made, it is either accepted or rejected and the game is over.

When the game is actually played Player A rarely proposes an equal division.   After all, he is in control and therefore stands to benefit the most.  In pure economic terms, Player B should accept any offer above a $10/$0 split.  For example, if the offer is $9.95/$.05, and economics is the only consideration, Player B should accept the offer since five cents is better than no cents.  Yet, Player B, insulted by the ridiculously unequal benefit which Player A will derive, will almost always reject such an offer.  In fact, in real life scenarios, Player B will rarely accept an offer below about 20 percent of the total money available and  half of Player Bs turn down offers under 30 percent.  In other words, if the offer is too unbalanced, Player B would rather get nothing than see just an apparent injustice take place.

Now let’s translate this game to real life in a divorce case.  Suppose due to business losses, an ex-husband has the opportunity to amend a past tax return and receive a refund.  But, since the original return was filed jointly with his then wife, her signature is needed.  What offer should he make to divide the refund?

If the husband were the paragon of generosity, he might offer to divide the refund equally, which should be immediately accepted.  But, a number of potential reasons, for example, due to the hard work he puts into running the business and the substantial risks in owning it, he may very well feel that he should offer a division other than 50/50.  From a economic standpoint, of course, the ex-wife should accept any offer over 100%/0%.  Yet, we know from the Ultimatum Game that she will reject any offer that she views as too imbalanced, even if she is violating the adage not to cut off your nose to spite your face.

Now we need to adjust the results of the Ultimatum Game to fit the divorce scenario.  As we have seen, when the game is actually played, Player B will make decisions based on more than just his financial well-being.  In fact, he will hurt himself financially in order to avoid what he views as an injustice.  Sorry, Karl Marx, man is more than just an economic animal.

Interestingly, Player B promotes avoidance of misjustice over economics even though he is a complete stranger to Player A – having, presumably, never had any dealing with him in the past and never will in the future.  The promotion of perceived fairness over economics is made with no history of animosity and with no object of teaching a lesson for the future.

In a divorce setting, of course, typically, there is a long history of feeling that one had been treated badly and not respected as an equal partner.  Also, the parties may indeed have some future relationship for which a party might believe that a lesson could serve a useful purpose.
There is one significant advantage of the divorce scenario over the game which makes reaching an agreement easier: It does not have be a finite game.  Instead, negotiations can take place, so if the initial offer is rejected, there may be a counter offer or even a new offer from the husband to avoid the refund being lost to both of them.

Still, the game is constructive in two respects.  First, in making a proposal – be it to divide a tax refund, a bank account or any other scenario when an equal division may not be viewed as appropriate, lawyers (and their clients) should not expect that financial considerations will govern over emotional ones.  Rather, in formulating the offer, Player A needs to be aware that even absent an emotional history, an offer viewed as “too unequal” will be rejected.

Second, in formulating an offer, the lawyer for Player A should be aware of the acceptance rate of the Ultimatum Game when it is played and then factor in the emotional history of the parties and the ability to continue to negotiate.  To the extent of a high degree of emotional hostility and a lack of give-and-take in past negotiations, the offer should transcend the average acceptance rate in the Ultimatum Game and vice versa.

Understanding human psychology is critical for being a good negotiator.  Game theory offers tested data which can be applied to real life situations.

This article originally appeared in the Summer, 2013 edition of the American Journal of Family Law (Vol. 27, No. 2)

Attorney Gregg Herman is a founding partner of Loeb & Herman, LLC in Milwaukee, WI. He practices family law exclusively, and can be reached via e-mail or by calling (414) 272-5632.