Abstract

We report an experiment on two treatments of an ultimatum minigame. In one treatment, responders’ reactions are hidden to proposers. We observe high rejection rates reflecting responders’ intrinsic resistance to unfairness. In the second treatment, proposers are informed, allowing for dynamic effects over eight rounds of play. The higher rejection rates can be attributed to responders’ provision of a public good: Punishment creates a group reputation for being “tough” and effectively “educate” proposers. Since rejection rates with informed proposers drop to the level of the treatment with non-informed proposers, the hypothesis of responder’s enjoyment of overt punishment is not supported