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The Ultimatum Game

We often “know” things are right or wrong w/o being able to express exactly how we know it.    And that is why we instinctively recoil at various types of injustice and immorality even when we can find no intellectual or legal basis. 

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In our skeptical age, however, it is nice to have more empirical evidence.  Here I would point to the ultimatum game, which shows how people will seek justice even when it doesn’t do them any good.   In the game one participant is given a sum of money (say $10) and is supposed to divide with another participant.   The giver can offer any amount he wants.  The receiver has the option only of taking it or leaving it.  They don’t negotiate, hence the ultimatum.  If the recipient accepts the offer, both get to keep their share.  If the recipient rejects the offer, both get nothing.

A rational theory (or a cynical one) would suggest that the giver should offer as little as possible and that the receiver should be happy to get it, since the alternative is zero.   Yet wherever the game is played, the givers usually offer about half and in those cases where an unfair offer is made, the receivers almost always reject the offer, even though it means getting nothing.   This is a very human nature choice; it is not rational.  

Justice is not rational.  It is moral and emotional.  It is based on our humanity.  As GK Chesterton said, “The madman is not the man who has lost his reason.  He is the man who has lost everything except his reason.” 

The variations on the ultimatum game also show that it is not only about equality.  If both participants believe one of them has a better claim to more money, from expertise, work etc, they are willing to offer and accept different amounts.    What we are evidently looking for is shares corresponding to fairness, not mere equality.  I think this makes sense.  We should give people what they deserve tempered with compassion.   It is not fair to treat unequal efforts equally, nor is it fair to treat equal efforts unequally.  This is justice. 

I think that is why I am annoyed, like many Americans, about the AIG bonuses.  I don’t begrudge a bonus IF the person is doing a good job and deserves it.   A reward comes from doing a good job.  But it offends the fundamental concepts of justice to take taxpayer money to reward those who evidently didn’t prevent their firm from being destroyed - i.e. did a bad job.  It is like rewarding the captain of the Titanic for not hitting an iceberg – oh wait …maybe there should be no bonus.

How much more shameful is it to make a bonus for sinking the ship?  Even if it is only a figurative ship in the case of some of our financial institutions; they are still at the bottom of the economy and dragging many others with them. 

It points to the moral hazard with any kind of bailout.   It tends to protect bad behavior.   It may be unavoidable to protect the bad behavior that got us into this mess.  It will do us no good if we let it drag us all down to prove our point.  But we should not reward it.

It seems like we have been given an ultimatum.  What do we do?


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