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ATHK1001 ANALYTIC THINKING

ASSIGNMENT 1, 2014

Student Name: Daxun Xu

Student ID: 440510101

Word count: 744 words

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Introduction

Ultimatum game has received extensive interests in behavioural economics. It is a

common social phenomenon, i.e. customer asks for a discount price on certain goods

or buys them somewhere else; employees want better salary package or resign for

better job. Most of the studies are under gain framework, which means the accepters

can either something or nothing. Meanwhile, it is suggested that the framing of the

study (gain and loss) could affect the outcome (ATHK1001, 2014).

Zhou and Wu (2011) have conducted a study which asked participants to spilt either a

gain or a loss of 10 Chinese Yuan in both gain and loss frames to investigate the

effects of framing and explanations of the outcomes.

Their study consists of three experiments while experiment 1 is made of two

sub-experiments. They found that loss framing has higher rejection rates in all

situations and they conclude that loss frame for the UG was like a negatively framed

negotiation which makes it harder to come to a compromise (Zhou and Wu, 2011).

They suspected that loss framing is associated with unfairness. To examine their

finding, ATHK 1001 has conducted a similar survey to validate Zhou and Wus study.

Hypotheses

A series of null hypotheses have been used. The first hypothesis (H1) proposed that

gain frame condition makes proposers to make more unfair offers. The second

hypothesis (H2) postulates that very unfair offers are more likely to be accepted in the

loss frame condition. While the last hypothesis (H3) assumed that proposers will rate

acceptors as more likely to accept their offers in gain frame.

Methodology

Samples

A total 793 participants (485 female, 308 male; mean age 20.6 years) coming from

ATHK1001 class and the other class have been selected in the study

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Procedures

Participants were randomly assigned into pairs with a proposer and an acceptor.

Participants sat at computers and did not know who they were paired with. Substituted

offer of $100, $225 or $250 was randomly given to participants. The first step is that

proposer offered either $500 gain or $500 loss and then acceptors made decisions.

The proposers

Results

From Table 1, it is found that the X2(1) value is equal to 6.833 while p value is as low

as 0.009, which suggests that H1, the gain frame condition makes proposers to make

more unfair offers, is true. The number of unfair offer case in gain frame and loss

frame are 23.5% while 13.6% respectively.

From Table 2, in Very unfair condition, the number of very unfair offers which have

been accepted is 24 in loss condition, compared with 14 in gain condition. The p

value is 0.026 < 0.05 (turn-over probability), which suggests the hypothesis is true.

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In Table 3, unlike previous two tables, the test is t-test. If the p-value is less than or

equal to 0.05, it means that difference observed between the means is statistically

significant. However, the p value is equal to 0.247>0.05, so the difference is not

significant. Therefore, H3 is rejected.

Methodology has been adequately tested in experiment 1 and 2. In terms of

experiment 3, as seen in the table, the standard deviation is very high considering the

mean value is somewhere between 0 to 100. Therefore, experiment 3 is not fully

examining H3.

Conclusion

Zhou and Wus study shows that the rejection rate in loss frame is higher than gain

frame under all experimental conditions, the results of ATHK1001 cannot be used to

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support their argument. Under fair and slightly fair condition, the gain and loss frame

is not showing significant differences according to the x and p values in Table 2.

The inconsistency of ATHK0001 experiment with Zhou and Wus study might be the

results of sample selection and procedure differences. As indicated in Zhou and Wus

study, their participants are not major in psychology or economics and had not

participated in similar experiments before (Zhou and Wu, 2011), while ATHK0001s

participants are from psychology major. The other possibility is that since

Zhou and Wus are taking more options for the processor and acceptor, the

distribution of participants in the graphs are more scattered than ATHK0001

experiment. Finally, the amount of cash that has been used in the experiments is

significantly different; this might have further psychological impacts on participants.

Future Research

Future improvement includes similar setting with Zhou and Wus experiment to

verify the assumptions made by them. Also biases including culture factor and gender

factor should be considered in the experiment.

Reference

Zhou, X, & Wu, Y, (2011). Sharing losses and sharing gains: Increased demand for

fairness under adversity.Journal of Experimental Social Psychology, 47,582-588.

ATHK1001, (2014)Analytic Thinking Assignment 1 Outline.