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Pastimes : Austrian Economics, a lens on everyday reality
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To: Don Lloyd who wrote (164)2/28/2003 5:15:42 PM
From: Wildstar  Read Replies (1) of 445
 
Don,

nytimes.com

HERE's a game economists play: Player 1 has $10 and can give any dollar amount to Player 2. Player 2 can either accept or reject it. If Player 2 accepts, they both keep the money. If Player 2 rejects it, neither player gets anything.

What should the players do? Arguably, Player 2 should accept whatever is offered, since some money is better than none. Player 1 should thus offer as little as possible: $1. That strategy is the standard game-theory equilibrium.

But that's not necessarily what happens when real people play this "ultimatum game" in laboratory settings with real money on the line. Faced with low-ball offers, many Player 2's reject them. And many Player 1's make more generous offers, often nearly half the money.

"About half the subjects that we observed played according to the way the game theory said people should play, and about half didn't," said Kevin McCabe, an economist and director of the Behavioral and Neuroeconomics Laboratory at George Mason University.

The Player 1's who do not follow the presumably rational strategy often wind up better off. Even without communicating with fellow players, they are able to cooperate for mutual benefit.

Why do people react differently to the same situation? And why do so many people give up money to punish anonymous cheapskates?

What do you think about this author's opinion that game players do not do what they should do? Does this "game equilibrium" have anything to do with real world choices people make?

Wildstar
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