Uncertainty and inequality preferences in the Ultimatum Game: A case study on Kenyan smallholder farmers

Abstract

This study examines proposer behavior in the Ultimatum Game through a novel framework grounded in Prospect Theory, integrating uncertainty and inequality preferences. Drawing on experimental and survey data from 240 smallholder farmers in Siaya County, Kenya, we investigate how socio-economic characteristics and membership of producer organizations influence decision-making. By eliciting Certainty Equivalents to estimate individual-level probability weighting functions, we analyze the roles of sensitivity and pessimism as uncertainty preference parameters in shaping proposer behavior. We further explore inequality aversion and preferences for individually advantageous allocations by comparing participants’ theoretical utility-maximizing decisions, as predicted by the model, with their actual observed behavior. The findings reveal significant variations in decision-making across producer organization types, providing fresh insights into the behavioral foundations of economic decision-making in non-Western contexts. This study not only advances the methodological scope of Ultimatum Game analysis but also enhances the applicability of experimental approaches in diverse socio-economic settings.