GTO Poker Theories: The Ultimatum Game

homo economicus
ultimatum game

One of the real gifts poker has given me is that it has been a great jumping off point to learn things from other disciplines like economics, AI, psychology and Game Theory. So here is a series of articles where I bring some of the most interesting things I have learned from other subjects outside of poker which are applicable in this game we know and love.

You may have already heard of an economics experiment called The Ultimatum Game, which roughly looks like this. Two participants play, Player A is given an amount of money (Let’s say $100) and is told to make an offer to Player B on how they should share it. If Player B accepts the offer, they both get their agreed share and the game ends, if Player B rejects it, both players end the game with nothing.

There are lots of interesting dynamics in The Ultimate Game that poker players should pay attention to (like the Nash Equilibrium and how the game changes if you play it with the same opponent over many games) but today I wanted to focus on the general trend of the results from this game, which has been replicated all over the world many times.

In theory, one should offer the smallest amount of money possible as Player A, because it’s free money for both players no matter what. In the example above, Player A should offer $1 to keep $99 because it is $1 more than Player B had before the game started and it is a maximum win for Player A.

In reality, over huge samples and from a diverse range of participants, this never happens. The closer to 50/50 the more likely the players were to win money and offers which gave under 30% for Player B were usually rejected. So when Player A gets too greedy, they tend to get punished.

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Homo Economicus debunked

homo economicus

The results of The Ultimatum Game thus are strong evidence that humans are not ‘Homo Economicus’ – ie. rational beings who will always do what is necessary to improve their economic gain. As a poker player if somebody offered you $1 for nothing, that is as good as it gets in EV terms, but when you discover the person offering you the money is going to pocket $99 and could have offered you more, a sense of injustice kicks in.

As mentioned above I may return to The Ultimatum Game in the future for some of the other valuable lessons it provides poker players, but for now I think the important takeaway is that where money is concerned, you cannot expect your opponents to make the rational choice. You always have to factor in the emotions that money stirs up.

This probably manifests at the poker tables best in what we call ‘spite calls’ where somebody acts against their best interest for the momentary joy that might come by possibly busting somebody. My favourite format to play is satellites and you frequently find yourself in spots where folding everything including Aces, for long periods of time and essentially blinding out, is actually your best strategy when you have a seat locked up. However, that does not stop you seeing players often calling all-in on a satellite bubble with a vulnerable hand like Ace Ten when there are players about to bust out with just a big blind left the next hand.

Money is always about more than money

rational

I’ve seen this a lot working with mental game coach Jared Tendler. In poker, the money is always about more than just the money itself. Money is often a surrogate for things like confidence, pride, stability and self-worth. Push a player too far at the table, just like if you offer them an Ultimatum Game split that insults them, and don’t be surprised if they do something against their better interest.

The Ultimatum Game also is a good reminder that the actual real world value of the money itself does have some importance. Most people if you offer them $1, if it comes with a feeling of injustice, can easily reject it. In the same example, if Player A offers $35 to their $65, that still might seem unfair, but $35 means a lot more to a lot more people, it has much more use, so it is a lot harder to reject. Again you see the same thing in poker, you won’t see many spite calls on the bubble of the Main Event where big money is on the line, in fact you’ll often see players blind away prematurely just to get that coveted cash.

As a poker player it is in your best interest to act as ‘Homo Economicus’ and always do the option that maximises your value. But the results from The Ultimatum Game are an important reminder that not everybody you will be playing against is able to do the same.

What theories from outside of poker have really helped you with your game? Let us know in the comments:

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Barry Carter

Barry Carter

Barry Carter is the editor of PokerStrategy.com and the co-author of The Mental Game of Poker 1 & 2.

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