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is one that closely resembles you pizza mind experiment:

Two students pair up. The first one is given 10$. He has to give a number of dollars to the second student; if the second student accepts, they both keep what the first student allocated each of them; if the second student refuses, they get nothing.

Economic theory would suggest that as long as the second student gets one dollar, he is better off, and will accept any split. Practice, again, shows that students were willing to forego their dollars if they felt the split was too unfair.

Can't find the references right now, but it's quite famous.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Jul 17th, 2007 at 06:26:30 PM EST
There's a problem of asymmetric information here: if the second student knows the rules (which stipulate that the first must give him money), he will not as easily reason that one dollar is all the same better than no dollar. He will hold out for a 50-50 split.

The experiment seems based on the condition that the second student doesn't know the first is under obligation. The kind of asymmetric information that is encountered everywhere, every day, in real life, and is one of the reasons why reality is much more complicated than hocus-pocus economic theory.

by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jul 18th, 2007 at 01:34:53 AM EST
[ Parent ]
Though, of course, I'm arguing against economic theory here. The second part of what you say is often cited as an example of the sense of "fairness".
by afew (afew(a in a circle)eurotrib_dot_com) on Wed Jul 18th, 2007 at 01:37:03 AM EST
[ Parent ]
It is indeed about information. In the first example, the guy who knows about the pizza deal could essentially say that that it his knowledge of the deal that deserves the extra slice vis a vis the guy without the knowledge.

You could extend the example and say that the guy stands outside the pizza place asking people going in if they want a third pizza very very cheap?

They give him the money, he tells them about the offer.

THAT'S the knowledge economy...

Question.

Is the guy "productive" or is the knowledge "productive" ?

 

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Jul 18th, 2007 at 03:40:16 AM EST
[ Parent ]
It seems the second student must know about the rules... After all, if the first one were under no obligations to share at all, there would be little reason not to accept the free dollar, handed to the second, just like that... There is a question of the exact rules of the game. One could imagine several possible ones, assuming both participants know all the rules:
  1. Student 1 makes a one off offer to student 2, which student 2 must accept or reject, with the consequences provided by the game
  2. Student 1 makes and offer, and may make additional offers if the first one is rejected, i.e. we have some situation involving negotiation...

Ideas of 'fairness', 'personal gain' and 'utility' should play out under both scenarios, with the second one probably resulting in more deals and a fairer distribution. This is the situation in isolation. If we start considering 'external' factors, outcomes may shift, however. As in, suppose student 2 is really poor, and can normally only afford to eat every other day. In this case, we might expect he would more readily accept even 1 dollar because he would use it to feed himself. Thus, it is a question not just of asymmetric information, the two students may very well both have access to all available data, but also a question of relative (economic) power, and what the two participants know about each other in this area. That's when it starts to get 'interesting'... When the first student know the second cannot afford to reject 1 dollar.

Related to a recent comment on asymmetric power in games:

Jerome a Paris:
A game of bluff and bluster for extravagant reward
Your chances in this world are proportional to the size of your bankroll: the house wins by virtue of being the house.
by someone (s0me1smail(a)gmail(d)com) on Wed Jul 18th, 2007 at 06:07:44 AM EST
[ Parent ]
Going to do some armchair evolutionary psych here. The theory (which gets support from this experiment) is that as a social species (ie, we work together to solve problems) we have built in mechanisms to punish cheaters, and we will often engage in punishment even when that punishment comes at a personal cost to us. That's what happens in this case - when the person is offered only one dollar, they rarely take it in order to deny (punish) the "offender" for being too greedy, despite the monetary cost to themselves.

Again this is why I wish leftists would take the field more seriously - holding on to the blank slate means that the conservatives get to misinterpret the data in their own image. In this case I think it helps demonstrate that the level effort required to indoctrinate people into believing that CEO's deserve $100 million a year is even higher than believed.

you are the media you consume.

by MillMan (millguy at gmail) on Wed Jul 18th, 2007 at 08:02:58 PM EST
[ Parent ]
worth underlining.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Jul 19th, 2007 at 03:32:54 AM EST
[ Parent ]
It's called the ultimatum game.

One person offers a share of a known quantity, say, $100, to a second.  The second person knows that they can accept or reject the offer.  If player 2 accepts, both receive the reward in the agreed proportion.  If the second player rejects the offer, both receive nothing.

Just because I know you love graphs...

From Gamelab, Harvard:

Number of players: 30 (15 games)
Mean proposal: 39 ± 10.7
Distribution of proposals:

Notes
The vast majority (73%) offers 40 or 50 points.
Surprisingly one offer of 40 is rejected
Comments
The rational strategy is to offer 1 point, and to accept everything. In reality, offers below 30% get mostly rejected. In a vast majority of studies conducted with different incentives in different countries, some 60-80% of proposers offer between 40% and 50% of the total sum, and only 3% of proposers offer less than 20%. Conversely, some 50% of responders reject offers below 30% of the total.

The 'rational',  material, utility-maximising response for the proposee is to accept anything offered, even one unit out of 100.

People don't.  There appears to be a payoff in depriving the maker of an unfair offer of his/her share, even at cost to oneself.

by Sassafras on Wed Jul 18th, 2007 at 03:14:56 PM EST
[ Parent ]
How do the "rational" strategies change when the game is played repeatedly and the players know that they will face off again?

Can the last politician to go out the revolving door please turn the lights off?
by Migeru (migeru at eurotrib dot com) on Wed Jul 18th, 2007 at 06:07:35 PM EST
[ Parent ]
by Sassafras on Wed Jul 18th, 2007 at 06:47:06 PM EST
[ Parent ]
Well, yes, that's exactly why I'm asking. The optimal strategy in the iterated prisoner's dilemma is suspected to be tit for tat. Applying tit for tat to the ultimatum game, if player 1 says "fuck you" to player 2 ("I give you 1 unit, take it or leave it") player 2 feels betrayed and so decides to betray back (tit for tat: "fuck you back, I won't take my 1 so you lose 99").

So I suspect the experimental result is consistent with people playing as if they were playing an iterated version of the ultimatum game, even if they are aware the rules say the game is a one-off thing.

Can the last politician to go out the revolving door please turn the lights off?

by Migeru (migeru at eurotrib dot com) on Wed Jul 18th, 2007 at 06:53:28 PM EST
[ Parent ]

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