HBD: Human Biodiversity

The Ultimatum Game

William Poundstone's recent book Priceless: The Myth of Fair Value (and How to Take Advantage of It) discusses many of the startling ramifications of behavioral economics, which was more or less invented by Daniel Kahneman and Amos Tversky, and for which Kahneman received the Nobel Prize (Tversky having died before the award). Among the classic experiments in behavioral economics is the ultimatum game, consisting of two players and a given amount of money. One player, the proposer, is given a sum of money, let's say ten dollars, and is allowed to split this sum in any fashion he likes with the other player. The second player, the responder, then either accepts the sum he is offered, in which case both players receive the money in the proportions chosen by the first player, or he rejects it, in which case neither player receives any money.

A moment's reflection will show that the second player ought to accept any offer at all, and that the first player ought to divide the sum in such a way as to give himself the most money; for instance, assuming the ten dollars can be divided into dollar units only, the first player ought to give himself nine and offer one the the second player, who then ought to accept it. That would be the way of rationality.

The surprising thing about the ultimatum game is how seldom this occurs. The average split, according to some of the studies, was 50-50, and other results showed that most of the second players would reject any offer below three dollars. Some psychologists and economists were skeptical that, when larger sums of money were at stake, the same sort of rejections would take place; after all, it costs little (perhaps only two dollars) to reject an offer that is felt unfair, but how many people would reject ten or twenty just out of spite, or a feeling of unfairness? But experiments with larger sums, such as one hundred dollars, gave the same results: responders are apt to reject any sum they consider unfair, and the most common offer is a 50-50 split.

Aside from the grievous damage these experimental results do to homo economicus, the economists' rational man, what could be going on here? Are human beings hardwired for some sort of “fairness”?

The ultimatum game has been tried on people of many different cultures, one of them being the Machichuenga people of Peru, whom Poundstone describes as “among the most asocial people on earth”, a “people with no economy to speak of”, and uncooperative with either each other or outsiders. Interestingly, the Machichuenga responders were likely to accept any offer, at least putatively exhibiting far more rationality than others who played the game.

Could the ultimatum game hold clues for political orientation? It would seem so. Leftist concerns with inequality and “fairness” could be hardwired, at least in certain people (i.e. leftists). Rightists and conservatives generally are usually more at ease with social inequality. Consider also that Europeans invented modern capitalism, and European societies are characterized by high degrees of trust. The most rigid adherence to the 50-50 split in the ultimatum game occurred among peoples of New Guinea, in which gifts must be reciprocated; among these people responders actually rejected offers of greater than 50% of the money, apparently on the grounds that it put them on the hook for a return of the favor. If European peoples exhibit a greater degree of acceptance of any split – even though they tend to reject lowball offers – it could indicate a greater degree of rationality, although whether that rationality has genetic grounds or whether it is a product of many years of capitalism is an open question.