Are We Fair, or Just Selfish?

In his excellent book Here Comes Everybody, Clay Shirky writes about the Ultimatum game, a well-known experiment in behavioral economics.  This is how it works.  Two people are given ten dollars to share between them.  One person gets to decide what the split will be; the other’s only power is either to accept or reject the proposed deal.  If he rejects it, neither of them receives anything.

money grabNow, according to conventional economic theory, the second person should accept any split, because even if he only offered one cent and the first person gets $9.99, he is still better off.  But that is not how it works in practice.  It seems that people are unwilling to accept any proposal that is perceived as too unequal; in practice, anything less than a $7-$3 split is liable to be rejected.  It seems that a desire for fairness – or a desire to punish people who don’t act fairly – trumps economic self-interest.

At first blush it seems like a good thing that people aren’t motivated solely by thoughts of personal economic gain.  But think about what’s driving the impulse to reject unequal offers.  Isn’t it a mélange of petty vindictiveness, jealousy, and a misplaced sense of entitlement?  Not much to celebrate there.Update: further illumination from James Surowiecki’s book, The Wisdom of Crowds.  He reports that in practice, the most common offer made by the first party is a 50/50 split.  This isn’t rational either.  Why do people do this?  Because the first guy is as jealous and vindictive as the second guy.  He knows what he would do if he were on the wrong end of an unfair offer.  All’s well that ends well?

Comments 2

  1. I think the explanation is much simpler: we make and expect “equal” offers because to do otherwise is to risk loss of social standing – and social standing is far and away the most potent motivator. Make an unequal offer and you risk being viewed as unfair; take an unequal offer and you risk being seen as a loser. Therefore anything other than an equal offer is a lose-lose.

    Mere money is a feeble motivator in comparison to status, useful only to the extent that it adds to our social standing. The only motivator with greater potential is sex since that is the goal of social standing.

    Apply Occam’s Razor: does my theory explain more than the observed behavior? Yes, it does. Nobody risks his life for his cohort because of the money. Not even mercenaries. They do it because to not do so is to destroy ones social standing entirely.

    Another case: Even though sex is the goal of social standing, sex is a weaker motivator if by having it you risk losing status in the long term. People will do almost anything to avoid losing face resulting from any act, including sex, that will make them look bad if revealed to the public. A brief review of the last six months worth of sex scandals provide ample evidence of this.

    The study is deeply flawed. What the game tests has no bearing on what the researchers think is tests.

  2. Ah, well. There was one other bit of information about the exercise that I omitted for reasons of space. I don’t doubt for a moment that you’re right about social standing, Jack, and I think the experimenters knew that too. That’s why the two participants were able to communicate with each other but did otherwise not know each other. Therefore the social standing impetus, while not removed, was minimized. One person would not necessarily care what the other thought.

    Anyway, personally I’m not persuaded by your general argument that social standing is the greatest motivator. I accept it might be for some people, but others don’t give a monkey’s what other people think. (Would that I were one of those.)

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