View Poll Results: What is your proposal?

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  • $100 to me, $0 to player B

    4 7.02%
  • $99 to me, $1 to player B

    3 5.26%
  • $90 to me, $10 to player B

    1 1.75%
  • $80 to me, $20 to player B

    1 1.75%
  • $70 to me, $30 to player B

    2 3.51%
  • $60 to me, $40 to player B

    7 12.28%
  • $50 to me, $50 to player B

    36 63.16%
  • $40 to me, $60 to player B

    3 5.26%
  • $30 to me, $70 to player B

    0 0%
  • $20 or less to me, $80 or more to player B

    0 0%
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Thread: Hypothetical: $100 Game

  1. #11
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    Re: Hypothetical: $100 Game

    Quote Originally Posted by CaptainCourtesy View Post
    If we are dealing in pure economics, then $99 to me and $1 to player B is the correct answer: both people turn out ahead and I, having the control would want to maximize my take.
    Only if you're playing the game once. If you're playing multiple times with multiple people, establishing a reputation for "fairness" will lead to you getting more favorable decisions more often.

    If you put two spider monkeys in cages where they can see each other and feed one apples and the other cucumbers, the one getting cucumbers will refuse to eat. Do the same thing with chimpanzees, and both will refuse.

  2. #12
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    Re: Hypothetical: $100 Game

    Quote Originally Posted by Harry Guerrilla View Post
    Both of your rational greatly confuses me.

    Economics has to account for psychology otherwise, you remove the key ingredient of what economics is about.
    Traditional economics often assumes that people will behave rationally to maximize their expected value...which isn't always true. Behavioral economics does indeed take psychology into account.
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  3. #13
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    Re: Hypothetical: $100 Game

    Quote Originally Posted by Kandahar View Post
    Traditional economics often assumes that people will behave rationally to maximize their expected value...which isn't always true. Behavioral economics does indeed take psychology into account.
    What are you defining traditional as?

    CC says "pure" which I think is incorrect because in order for it to be pure, you would have to always include psychology.
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  4. #14
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    Re: Hypothetical: $100 Game

    Quote Originally Posted by Kandahar View Post
    Traditional economics often assumes that people will behave rationally to maximize their expected value...which isn't always true. Behavioral economics does indeed take psychology into account.
    The problem isn't assuming that people will behave rationally to maximize their expected value, as in this case, they are. The real problem with traditional economics is that they assume people are a frictionless uniform sphere that exists only for the duration of the immediate mental exercise.

    If someone offered me a $99/$1 split, I would decline, and consider it perfectly rational. The seemingly irrational willingness to take a loss in order to produce a greater loss for an adversary is actually a perfectly rational response with more long term benefits. The most obvious example is that player A must consider the possibility that I will accept a loss out of spite when determining the split, and so must provide greater incentive. In order for that implied threat to carry any weight, I must make good on the threat every now and then.

  5. #15
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    Re: Hypothetical: $100 Game

    Quote Originally Posted by Harry Guerrilla View Post
    What are you defining traditional as?
    The Paul Samuelson / Eugene Fama model of economics commonly taught in universities since the 1970s. The idea that people are value-maximizing agents, behave rationally (at least in the aggregate) when money is on the line, and that markets are efficient.

    Quote Originally Posted by Harry Guerrilla
    CC says "pure" which I think is incorrect because in order for it to be pure, you would have to always include psychology.
    I would agree...it isn't really pure, it's just the traditional approach to economics. Behavioral economics has been gaining a lot of momentum in recent years, and it looks like it stands a very good chance of being the first major shift in economic thinking of the 21st century.
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  6. #16
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    Re: Hypothetical: $100 Game

    Quote Originally Posted by Panache View Post
    The problem isn't assuming that people will behave rationally to maximize their expected value, as in this case, they are. The real problem with traditional economics is that they assume people are a frictionless uniform sphere that exists only for the duration of the immediate mental exercise.

    If someone offered me a $99/$1 split, I would decline, and consider it perfectly rational. The seemingly irrational willingness to take a loss in order to produce a greater loss for an adversary is actually a perfectly rational response with more long term benefits. The most obvious example is that player A must consider the possibility that I will accept a loss out of spite when determining the split, and so must provide greater incentive. In order for that implied threat to carry any weight, I must make good on the threat every now and then.
    I think you're assuming things about the scenario that aren't there. Since the scenario doesn't say otherwise, I made the fewest assumptions possible: Specifically, I didn't assume that I'd had any contact with Player B before, and I didn't assume that I'd be playing this game again with Player B in the future. Obviously if it's a repeating game instead of a one-shot game, then the rules change a little bit.
    Last edited by Kandahar; 06-14-10 at 04:47 AM.
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  7. #17
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    Re: Hypothetical: $100 Game

    I think the answer lies somewhere in personality. Some people will see the perfectly logical answer, assuming they are not competitors, and take 1$ if they B and propose 100$ if they are A. Others I think will view anything less than 50/50 as an insult and perhaps a violation of social norms, and thus refuse anything but 50/50. Some people may even see 100/0 as a perfectly fine solution, as while B gets nothing they certainly aren't damaged in any fashion. So even if they see A as greedy they have nothing to gain from A getting nothing either.

    Are the two players allowed to debate and haggle over the division? Or does A simply state one proposal and B accepts or declines and then the game is over? I would think the majority of A players in a "one-proposal" game would go with 50/50 to ensure 100% that they get something, some who perhaps are cleverer or riskier may decide to make a more favorable offer to themselves and see if B is smart enough or admit to explain how he gains nothing by declining. If the players were allowed to debate I'd imagine you'd see more attempts on the part of A to get more than 50/50.

  8. #18
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    Re: Hypothetical: $100 Game

    Quote Originally Posted by Kandahar View Post
    The Paul Samuelson / Eugene Fama model of economics commonly taught in universities since the 1970s. The idea that people are value-maximizing agents, behave rationally (at least in the aggregate) when money is on the line, and that markets are efficient.
    The Chicago school?

    If they would adopt it as a general axiom instead of a strict rule, they would be heading in the right direction.

    Quote Originally Posted by Kandahar View Post
    I would agree...it isn't really pure, it's just the traditional approach to economics. Behavioral economics has been gaining a lot of momentum in recent years, and it looks like it stands a very good chance of being the first major shift in economic thinking of the 21st century.
    I don't understand how people could even theorize about economics without considering behavior, especially trained professors.
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  9. #19
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    Re: Hypothetical: $100 Game

    Quote Originally Posted by Harry Guerrilla View Post
    The Chicago school?
    No. Milton Friedman and the monetarists were a part of standard economics, but I wasn't referring specifically to them. Most of the Keynesians fall under the standard economics banner as well, as do the supply-siders.

    Quote Originally Posted by Harry Guerrilla
    If they would adopt it as a general axiom instead of a strict rule, they would be heading in the right direction.
    I think there are far too many examples of people behaving irrationally, even in the aggregate, for this to be a general axiom. At most, I might accept the idea that aggregations of people are better than individual experts in certain key areas of economics, like stock pricing...but even that is questionable IMO.

    Quote Originally Posted by Harry Guerrilla
    I don't understand how people could even theorize about economics without considering behavior, especially trained professors.
    It's amazing how people will contort reality to match their mathematical theories, rather than designing theories to match reality.
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  10. #20
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    Re: Hypothetical: $100 Game

    Quote Originally Posted by Kandahar View Post
    I think you're assuming things about the scenario that aren't there. Since the scenario doesn't say otherwise, I made the fewest assumptions possible: Specifically, I didn't assume that I'd had any contact with Player B before, and I didn't assume that I'd be playing this game again with Player B in the future. Obviously if it's a repeating game instead of a one-shot game, then the rules change a little bit.
    All I am assuming is the the players are human. Since there is a strong potential for player B to turn down $1 out of spite, even if you only play once, and you have had no prior contact with player B, you have to offer him more than you would if you knew that he would act so called "rationally."

    If everyone acted "rationally" you could just offer him $1 and keep $99 for yourself.

    It seems to me then that being an "irrational" creature is more likely to maximize your expected value than being a "rational" creature, since the "rational" creature would only get $1 and the "irrational" creature gets substantially more. Accordingly it seems more rational to me to be the "irrational" creature.

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