• OBJECTION!
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    1 month ago

    In “The Ultimatum Game,” the first player makes an offer of how to split $100 with a second player, who can then choose whether to accept or deny the offer. If they accept, they split the money as proposed, if they refuse, neither of them get anything.

    The game theory rational outcome is for the first player to offer $99-$1, and for the second player to accept. Assuming, of course, that the first player knows the second will act according to game theory rationality. In real life, when experiments have been done, people tend to reject offers past about $70-$30. Because people tend to have a minimum line, it makes more sense to make offers more generous than $99-$1.

    There’s a good reason why people behave that way. It’s because, in practice, when a comparable situation comes up, it’s usually not just a one and done interaction. The second player can tell the first what they will or won’t accept, and if they accept something less than what they said, they lose credibility in the future. In that sort of situation, the worst possible thing for the second player to tell the first is that they intend to act according to their rational self-interest, that they’ll accept any offer because it’s better than getting nothing.

    I would argue that this situation is analogous to voting. The politicians make an offer on how much they’ll do for you vs how much they’ll benefit themselves, and the voter has the option to accept or refuse the offer. Just as in the above example, it’s sometimes better to refuse a bad offer even if the alternative is worse, in order to gain bargaining power and credibility in the future. Meanwhile, following a strategy of “lesser-evilism” guarantees that you will only ever be offered 99-1 splits, because they know you’ll accept 1 rather than zero.

    Sometimes, an “irrational” strategy can be more effective than what appears to be game theory rational on the surface level.