Ok, another quick article based on Frank’s description of a game in which

the experimenter gives one subject some money — say, \$100 — and then tells him to propose a division of that sum between himself and a second subject. If the second accepts, each walks away with the amount proposed.

For instance, if the first proposes “\$60 for me and \$40 for you” and the second accepts, the first gets \$60 and the second gets \$40.

But here’s the twist: if the second subject rejects the proposal, the \$100 reverts to the experimenter, and each subject receives nothing.

Standard rational choice models predict that the first subject will make a one-sided proposal — such as \$99 for himself and \$1 for the second subject — since he knows that it would be in the second subject’s interest to accept rather than get nothing.

But such offers are rarely proposed, and when they are, they are almost invariably rejected. (x)

Let’s postulate first of all that the two subjects are equally “rational” or not as the case may be. If the first subject’s name is Smith, then he is pretty much playing against himself, his alter ego; let’s call him for convenience Jones. Call this assumption E.

Now let me modify the game a little, such that Jones can also make his wishes relative to the splitting of the loot known. And suppose he says “unequivocally” (or just pretends to be so obstinate) that he will reject any offer below \$99. Then it is Smith who is in trouble. In order to get anything, he now has to be content with a mere \$1.

Now imagine that both are, according to assumption E, equally bullheaded. Then no matter how often the game is played, no one gets anything. Even if the minimum amount each would accept is lowered to \$51, still no fun is had by anyone.

The only division that results in both players’ having anything over repeated games, retaining each player’s narrow self-interest, is 50/50. Notice that no allusion to fairness or justice is made at all. The “just” distribution is entirely in the selfish interest of both Smith and Jones.

The “rational choice model” takes people who have lived in society all their lives and are therefore used to repeat — numerous times — mutual ultimatums, in which even splits are commonplace, and places them in an artificial game that renders useless their long-standing ingrained habits. Then it wonders why people behave “irrationally.”

Are you kidding me, get real!

Categories: Frank: Darwin Economy