ATHK1001 ANALYTIC THINKING

ASSIGNMENT 1, 2014






Student Name: Daxun Xu
Student ID: 440510101
Word count: 744 words





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
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 X
2
(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.

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
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.