Inequality Aversion

The ultimatum game is a simple experiment with profound implications. The game goes like this: one person (the proposer) is given ten dollars and told to share it with another person (the responder). The proposer can divide the money however they like, but if the responder rejects the offer then both players end up with nothing.

When economists first started playing this game in the early 1980s, they assumed that this elementary exchange would always generate the same outcome. The proposer w...