The Ultimatum Game

The cheerleaders for “Economic Growth” like to remind us that the best way for working class Americans to take home a bigger pay check is for economic growth to grow the whole pie. And even if their %age share of the pie doesn’t grow, as long as the pie grows they will take home a bigger piece of the pie. Which is probably true. After all, “A rising tide lifts all boats” (attributed to John F Kennedy, fgodsake!). 

But is this fair? Is it fair that when the pie grows, the top earners keep most of the extra pie while workers only get crumbs? “Hey, a bigger pay check is a bigger pay check! What business is it of yours that your portion (%age) of the pie isn’t bigger as long as the size of your portion (raw $’s) is bigger?”

There have been scientific experiments that looked to see how people reacted to this kind of thinking. The most famous is called the Ultimatum Game. The experimenter grabs two people off the street, Mr. A and Mr. B. He tells them: “I am going to give Mr. A $100 and he will offer Mr. B some portion of that sum. If Mr. B is content with Mr. A’s offer, the two of them will go home with their newfound cash. But if Mr. B rejects Mr. A’s offer, they both go home no richer than they came.” For example, Mr. A offers Mr. B $15 and prays that Mr. B will be content with that offer. Maybe he will, maybe he won’t. If Mr. B is content, Mr. A leaves $85 richer and Mr. B leaves $15 richer. If, on the other hand, Mr. B is not content, they both leave with nothing extra in their wallets. What this “game” is intended to illustrate is the reality of Homo Economicus, the “Rational Actor” of classical economics. If he is real – if real people are rational actors – Mr. B would be satisfied with any amount he is offered, as it is “found money” and why would he refuse it, no matter how small it is? But what happens most of the time is that Mr. B is NOT content with what Mr. A offers him unless he sees it as somehow “fair,” most often more than $30 or $40.

Get this! Similar experiments have been performed with chimpanzees and capuchin monkeys. The experimenter rewards two individuals with a piece of cucumber for performing a simple routine task. Over and over again. Finally, the experimenter rewards one of his subjects with a grape (a tastier reward, a higher reward) instead of a cucumber piece. That’s it. The slighted individual rejects his cucumber reward; indeed, he throws it contemptuously at the white gowned human. Even “lower” primates are not rational actors, even primates demand fairness.

I would make the further point. Many Americans, when considering a national Tax Cut (brought to you by the party that used to be the party of Fiscal Responsibility, but has become the party of politically motivated tax cuts, since the early 1980's), seeing that their portion will be a few hundred to a few thousand dollars, while the portions won by their betters will be hundreds of thousands to millions of dollars, are apparently OK with this (unfair) split. If you are with me, if you have gotten what I am trying to say so far, that humans and monkeys CARE about fairness, then those Americans could profit from a lesson in fairness taught by a few chimpanzees.

But maybe it’s not that simple. I’d like to propose a few corollaries to the truths embodied in the Ultimatum Game. 

• Imagine that instead of $100, the experimenter gave Mr. A $1,000,000. Imagine further that Mr. A was not the kind of person who gave a rat’s ass about fairness and so he offered a disrespectful 2% of his stash to Mr. B, he offered $20,000 (yup, $20,000 is 2% of $1,000,000!) to Mr. B. Would you turn down that “unfair” offer, would you walk away from a $20,000 gift? I think that it is fair to say that the higher the original sum in the Game, the less likely that Mr. B will insist on fairness (a close to equal split), the harder it will be for Mr. B to refuse an unfair offer.
• The first corollary to this corollary may be that the higher the original sum in the Game, the easier it will be for Mr. A to offer a “fair” split.
• The second corollary to this corollary may be that the wealthier that Mr. B is, the easier it will be for him to insist on fairness (say NO to an unfair offer).
• And, finally, a second corollary. The original Ultimatum Game gives Mr. B ultimate power to determine the outcome of the Game: he can elect to receive what he is offered, or he can refuse an unfair offer and Mr. A loses his gift as well because he played unfair; whereas a single tax payer has NO power whatever over the terms of the tax cut, his solitary input to the powers that be is meaningless, it has no impact (if he could organize the 99%, then the lesson of the Ultimatum Game would be felt). So, the second corollary is: the lesson of the Ultimatum Game only applies if Mr. B’s solitary decision controls the outcome of the Game. 

And isn’t this after all what I have been writing about all along? You, an average member of the citizen class of the United States of America, have no power to effect what goes down in Washington, DC. And that you had best organize to alter that reality, otherwise you will get what you deserve – no democracy, no power, just crumbs from the feasts of the fortunate few.