I wonder what it is about the ultimatum game that makes for journalistic error
? More of the same from Emily Yoffe in Slate:
We like to think we go through life as rational beings. Much of economic theory is based on the notion that humans make rational choices (which may mean that economists don’t get out much).
“Rationality” is a model, and admits any form of behavior. It does not say how someone “should” behave.
In 1982, some economists came up with a little game to study negotiating strategies. The results showed that rationality is subservient to more powerful drives—and demonstrated why human beings so easily conclude they are being wronged. The idea of the “ultimatum game” is simple. Player A is given 20 $1 bills and told that, in order to keep any of the money, A must share it with Player B. If B accepts A’s offer, they both pocket whatever they’ve agreed to. If B rejects the offer, they both get nothing. Economists naturally expected the players to do the rational thing: A would offer the lowest possible amount—$1; and B, knowing $1 was more than zero, would accept. Ha!
This is the Nash Equilibrium of the game, if both players cared only about money. It has nothing to do with “rationality”.
In the years the game has been played, it’s been found that almost half the A’s immediately offer to split the money—an offer B’s accept. When A offers $9 or even $8, B usually says yes. But when A’s offer drops to $7, about half the B’s walk away. The lower A’s offer, the more likely the B’s are to turn their backs on a few free dollars in favor of a more satisfying outcome: punishing the person who offended their sense of fairness. This impulse is not illogical; it is essential.
Only the hypothetical economists in the article found it illogical, and they’re not real. Once more: rejection of a lowball offer in the ultimatum game is rational under the entirely realistic assumption that people care about more than money. Please stop attacking the straw economist who disagrees with that statement.
This mostly innocuous entry at the Freakonomics blog is comparing the rejection of offers in the ultimatum game (where I propose a division of some money, you either accept or reject, we get the money if you accept but don’t if you reject, and then we go home) to the rejection of the ‘bailout’ of the financial sector. It raised my ire with this:
Many economists cannot understand why they’d do such a thing. To an economist, an offer of even 1 percent would be worth accepting since it is free money, and because for the second player it is ultimately irrelevant how much money the first player takes home.
But most people do not think like economists. When offered 10 percent or 20 percent or even 30 percent of the total, they are disgusted by the inequity — and willing to pay the price for that disgust by rejecting the offer.
Show me a scrap of evidence that “many economists cannot understand why they’d do such a thing.” Pardon my language, but that’s bullshit. Really, what the hell. In fact, it’s so infuriatingly ridiculous that I’m going to be forced to actually say something as clearly and calmly as I can, but I’m going to have to do it in boldface:
Economists are capable of feeling things.
Phew. No, seriously, the quotation claims that:
- Economists don’t understand that people care about things.
- Economists don’t feel feelings.
- Economists do not conduct life in the same way as people who actually care about things.
Give me a break.