Ultimatum

There’s an experiment in which people play ‘The Ultimatum Game’. The game’s absurdly simple, yet what it tells us about human nature has spawned volumes.

It goes like this:

  1. There are two people: they’ve never met before, and they’re politely told they’ll never meet (at least, not in the experiment) again.
  2. One of them is handed a sum of money: say £10.
  3. Both are informed that the game’s ‘default’ outcome is that they get to keep their share of the money at the end.
  4. This person with the money offers the second person – who may or may not be within their sight – some share of their loot: any share they choose…
  5. But there’s a catch.
  6. Both are told that if the second person is unhappy with the miserliness of the offered share, that second person can turn it down AND that in that event – i.e. a rejection – neither party gets to keep any money.

Now then.

What, as a ‘second person’, would people choose to do?

Classical economics tells us that, however miserly the offer, it should always be accepted. £1 is evidently better than nothing, after all, and classical economics takes it as a given that we all act rationally to maximise the loot in our hands.

But that’s not what happens here.

People, in real life, tend to reject the lower offers even though they know that it ‘costs’ them and that the possibility that doing so might ‘encourage a better offer next time’ is simply not on the table: recall, they understand they’ll never see the other person again.

We – human beings – reject those low offers because there’s a much older mechanism at work here: our sense of what is fair.  That sense (and someone has now demonstrated it’s so deep-seated that it’s older than actual humanity: chimps might have it too) causes us to want to ‘take down’ someone perceived to be treating us – or someone we care about – unfairly, even if the taking-down comes at a cost to ourselves.

In entirely separate news, in the run-up to the European Union Referendum two years ago most spokespeople for the government (which was pro-‘Remain-in’ at the time) spent a lot of time and energy stressing that leaving the European Union would damage the Banking industry, only to appear genuinely puzzled by what happened next…