Behavioural psychology has been a hip thing for quite a while. Much of the research involves a thing called an "Ultimatum Game". In this A is given an amount of money or other good, and has to offer B some of it. If B doesn't like the offer, she can reject it and nobody gets any money. In the early versions of this game, the amount was $10 and A and B were undergraduates.
It's worth noting that, according to "rational economics", B should accept at offer of 0.01$, because it's a cent she didn't have before and how can it matter to her that A gets to keep $9.99. Well, that shows how much insight into human affairs, and hence the stock and bond markets, rational economics provides.
The Ultimatum Game is to economics and behavioural psychology what the Trolley Game is to moral philosophy. Both have a common fault, which is that neither side knows what relationship they are in. The other fault is that, at lease in the simple version, there's no negotiation. B has to accept or reject. If she could negotiate, and A could reject her counter-offer, B would say: "split it 50-50 or I beggar both of us". At least a B with a healthy sense of self-regard and fairness would. Others might offer something less fair, but would be re-negotiated back to fairness - or of course, they could go on negotiating forever. A variant of the simple game that allowed for conditional negotiation revealed that the majority of people settled for a close to 50-50 split. Who would have guessed?
The essential condition of the game is that both sides know that it's not A's money. If it is A's money, there needs to be a relationship between A and B that makes sense of the idea that B should get any of it. Perhaps B is A's temporarily broke sibling who needs $5 to get home. Perhaps B is a charity offering to do something about a situation that A cares about. This is the familiar land of obligation and quid pro quo. Nothing to see here.
Except that there's a version, called the Dictator Game, due to Elizabeth Hoffman at the University of Arizona which shows that people will behave more generously if they suspect other people are watching (Wow! What these people find out about the depths of our souls!). William Poundstone, whose excellent book Priceless I have taken this stuff from, tells us we should not be shocked by finding out that people will keep more of what only they know they're getting than they will if they know other people know what they're getting. After all, he says, that's what we do when we don't donate a chunk of our salaries to charities.
That's too much Peter Singer. Donations to charities from our salaries are not the same as donations to charities from anonymous envelopes full of money given to us by researchers, or even by oil company executives. You need to be a very clever academic, or really to despise salarymen, to have that distinction blur in front of your moral vision.
Ultimatum games don't really tell us anything we didn't know, except the extent to which people aren't willing to enforce fairness on each other (A shouldn't even think she could offer less than $5 to B for fear of being told off). Unless, of course, we are old-school economists, when it's all a huge surprise and a proof that people are crazy. Which attitude is almost as bad as the idea that people are cute in their erratic behaviour.
The attraction of the Ultimatum Game is that it can be, with the right squint, made to look like a lot of economic behaviour. Perhaps A is a supermarket and B is a supplier, and A's offer is what they are willing to pay for the goods. In which case, the fair answer is: cost plus an acceptable profit, plus a 50-50 split of any super-profit due to the consumers' willingness to pay a silly price for the product. (The super-profit is what's left after the supermarket takes it's fair profit.) Of course, in real life what happens is that the supermarket offers $3 and then when it actually has the £10 from the customer, only pays £1.50 because, well, like B has a choice?
The sad thing is that most of the research seems to be about how companies can exploit customers and suppliers. I guess that's what the academics can get grants for. Where's the research that helps customers, workers and suppliers exploit the faceless bureaucrats who own the shares in the companies?
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