Saturday, November 6, 2010

A sense of fair play does pay

by Tim Harford

Financial Times

November 5, 2010

I recently had the dubious pleasure of having to deal with someone who is successful and indeed popular, and yet a stubborn, selfish bully when he thinks nobody is looking. It moved me to speculate on an old question: do nice guys finish first, or last?

No doubt whole libraries are filled with psychological and historical research on the topic. To an economist, the natural way to understand such questions is to turn to game theory, which is a way of turning decisions into a simplified mathematical format. Specifically, game-theoretic decisions are those with more than one player, where each player’s choices alter the other players’ incentives.

In one of the simplest games, “Ultimatum”, one player (Abby) receives an envelope containing 100 one-dollar bills. She has to decide how much to offer to the second player (Zach). Zach either accepts this ultimatum, or both players lose everything. If Zach is motivated only by cash, then a single dollar will be enough to get him to agree. Real people have other concerns, and when the game is played in the laboratory, the first player usually offers a more even split, and tends to regret it if her offer is too miserly.

Ultimatum is a fascinating game: Molly Crockett of the University of Cambridge is part of a team examining whether people play Ultimatum differently when drugs are used to lower their serotonin levels. (They do, rejecting more unfair offers.) John List of the University of Chicago has shown that what people offer and accept is highly sensitive to the experimental context – for instance, whether the initial money was perceived as having been earned.


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