research money well spent

news flash: emotions sometime trump rational thought! Shocking, I know. Though I was intrigued at how the fMRI paradigm in this case provides a neat empirical example for why prisoner’s dilemma models don’t translate well into real-world practice:

A classic economic example is the “ultimatum game,” in which one participant gets 10 $1 bills (or loonies, in Canada). He chooses how many to offer to a second participant. If she accepts the offer, the money is split the way the first participant suggested; if she rejects the offer, nobody gets anything.

Logically, the first participant can maximize his money by offering a single dollar, because logically the second participant should accept that as being better than nothing. In real life, however, the second participant, if offered only a dollar or two, almost always rejects the offer.

Functional MRI scans of brain activity show that a low offer stimulates an area associated with negative emotions, including anger and disgust. It seems the second participant would rather punish the first participant for making such an insulting offer than make an easy buck. And usually, the person making the offer understands this and offers something close to an even split, averaging about $4.

I don’t really see why the above reasonable decision-making process is inherently non-rational or “emotional” though. Doesn’t it make good rational sense to “punish” someone making a lowball offer, so they are motivated to offer you more up front?

1 thought on “research money well spent”

  1. quick thoughts..

    from pure self-interest, it makes sense to punish only if there is going to be a repeat game. it also makes sense to punish for altruistic reasons, or guided by “emotional” fairness reasons.

    but personally, i would be mad not at the other player, but at the experimenters, for not giving me the chance to play the donor. why should i be the recipient ? was that choice made fairly ? and if it was (e.g. by a coin toss), then i would treat myself as the middle man while the other player won a lottery.. he would have to pay me commission to claim his money. as long as he paid me enough to make *me* happy, irrespective of what he is getting, i would let him claim his share. of course, $1 (out of $10) doesn’t cut it.. the outcome of the game would be different if played for a total of $10,000 of which he offered me $1000…

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