What Makes Us Tick


Fair Game

Every man must decide whether he will walk in the light of creative altruism or in the darkness of destructive selfishness.

- Martin Luther King Jr


by Ruth Mace

Imagine that you are with a group of people from your community, and have been given a sum of money on condition that you share it with an anonymous member of the group.  You make them an offer of a proportion of the cash, but neither you nor the other player will get a penny unless they accept your offer.  There is only one round of the game, and confidentiality is maintained.

What do you think is a fair offer?  The answers to this question, for a range of cultures from around the world, were the subject of a symposium held last month: economic game theory met human behavioural ecology with fascinating results.

The rational way to play the game, known in economics as the ultimatum game, is for the first player to offer as little as possible and for the second player to accept it - something is always better than nothing.  But when groups of university students play, the most common offer is 50% of the money, with a mean of about 40%.  Offers below 20% are almost always rejected.  Rejection is pure spite, as no one gains, but it is the only way of punishing the proposer for a mean offer.  A range of other experiments confirm a general tendency in humans both to be generous to distantly related individuals and to punish cheaters, sometimes at great personal cost (H Gintis, University of Massachusetts, Amherst).

Western university students are the social scientist's equivalent of the laboratory rat, yet evolutionary psychologists and economists are often tempted to assume that results obtained with them represent universal human preferences.  But Westerners, not bound by the constraints under which humans evolved, may not be a good evolutionary model.  The first attempt to play the ultimatum game in a traditional society - the remote Machiguenga subsistence farmers of the Amazon (J Henrich, University of California Los Angeles) - highlighted the possibility that there may be cross-cultural variation in the human concept of what is fair.  The Machiguenga routinely made and accepted offers of 20% or less: Machiguenga are mean, but still not mean enough to be considered truly rational.  Can their relative poverty compared to Westerners explain their behaviour?

Gintis had persuaded several more anthropologists to fan out around the globe and get people from a range of traditional cultures to play the ultimatum game.  This often involved logistical headaches: groups of people were sequestered in different parts of a forest to maintain anonymity, with messengers running between them, and players were impounded until all had finished playing so they could not influence each other by discussing their strategies.  The results confirmed the early suspicions of cultural differences, in that a bewildering variety of offers were considered fair.  But how and why was open to interpretation, and each anthropologist had a different explanation.

The Machiguenga turn out to be at the mean end of the spectrum.  A range of other subsistence farmers, as well as hunter-gatherers, living in circumstances where wealth can determine infant mortality and fertility, may both offer and reject large sums of money that are equivalent to weeks of income in some cases.  Oromo pastoralists in northern Kenya made generous offers, although those who were less involved in market trading, and thus had less cash, were less likely to do so (J Ensminger, Washington University, St Louis).  Hadza hunter-gatherers from Tanzania (F Marlowe, Harvard University) living in large villages make more generous offers than those from smaller camps.  This is counter to the predictions of both kin selection (helping your relatives) and reciprocal altruism (helping individuals who may help you on future occasions) that altruism is likely to be stronger in smaller groups.

Possibly the tendency to share, and also to punish those who do not offer enough, arises from the level of inter-reliance in the group.  This mutualism could explain why, in Lamalera, Indonesia, traditional whalehunters would accept nothing but generous offers, which were usually what were made.  Team effort is essential to hunt whales in open rowing-boats (M Alvard, State University New York, Buffalo) - these hunters are literally all in the same boat.

In Conambo, in the Ecuadorian Amazon, levels of sociality varied within one village that could be divided into two alliances (J Patton, Washington State University, Pullman).  Although individuals did not know which alliance their partner belonged to, those from the more stable alliance were more likely to make generous offers, suggesting that time discounting was a consideration - if you are not likely to stay in a village for long, why be generous?

A common thread to these results is that interactions within human communities may not be played out simply through the assessment of individual costs and benefits (although that surely operates too).  Rather, behaviour may be influenced by a general sense of the level of group cohesion, stability and inter-dependence.  The tendency to cooperate with members of the group and to punish those who do not cooperate, even at some personal cost, has been described as "strong reciprocity" (H Gintis Journal of Theoretical BioIogy, in the press) - this is a form of altruism that is not easily explained by kin selection, reciprocal altruism or any of the other evolutionary models of cooperation based on individual advantage.

Such findings have stimulated evolutionary theorists to return to models of the evolution of group-beneficial traits.  Several models of the evolution of such behaviour exist.  They include those based on cultural (J Soltis et al Current Anthropology 36, 473-483; 1995) or possibly genetic traits (Gintis), all in populations structured in small groups at high risk of extinction.  Such conditions could have prevailed in human societies in the not-too-distant evolutionary past.  But whether this led humans to evolve a genuine social conscience is still open to debate.

Ruth Mace is in the Department of Anthropology, University College London, Gower Street, London WC1E 6BT, UK e-mail: r.mace@ucl.ac.uk

Source: Nature Vol 406 20 July 2000

See also:

bulletAnger Plays Key Role in Human Cooperation (in the section on Working) - It¹s not love, affection or even blatant self-interest that binds human societies together - it's anger, according to Swiss researchers.  They made the unsettling discovery while trying to fathom what makes people cooperate...

Burning Envy

New Research Shows Just How Much We Hate Winners

New research by economists at the Universities of Warwick and Oxford has provided surprising information on just how much people hate a winner.  It also shows what lengths human beings are prepared to go to damage a winner out of a sense of envy or fairness.

The researchers, Professor Andrew Oswald of the University of Warwick and Dr Daniel Zizzo of Oxford, designed a new kind of experiment, played with real cash, where subjects could anonymously "burn" away other people’s money - but only at the cost of giving up some of their own money.  Despite this cost to themselves, and contrary to economists’ usual assumptions, 62% of those tested chose to destroy part of other test subjects’ cash.  In the experiment, half of all the laboratory earnings were deliberately destroyed by fellow subjects.  Everyone in the laboratory sessions was anonymous and hidden.  The subjects had only a computer terminal, into which they played, and in which they could see how much other people were winning.

In each session, the test subjects began with a betting stage which gave them some money (about £10 but sometimes much more) creating an unequal wealth distribution.  In the final stage, the "burning" stage, subjects could if they wished eliminate ("burn away") other people’s money - but only by giving up some of their own cash winnings.  At the most expensive level, they had to give up 25 pence to destroy one full pound owned by someone else.  It was made clear to the subjects that burning others would reduce the cash of the person choosing to burn.

The economists expected little burning, and especially that the laboratory subjects would stop destroying other people’s money once the price reached 0.25, but in fact they found that even this high price did little to stop people annihilating other people’s wealth.  Most individuals still chose to hurt others, despite the large cost to their own pocket.

The researchers found that those given who gained the most additional money at the betting stage, burned poor and rich alike, however disadvantaged laboratory subjects mainly targeted those subjects that they saw getting what they perceived as undeserved financial windfalls.  The authors concluded that "our experiment measures the dark side of human nature".

The full paper is in pdf format at this link: www.warwick.ac.uk/fac/soc/Economics/oswald/paris.pdf

Professor Andrew Oswald, Professor of Economics
University of Warwick Tel: 024 76 523510 (Office) 01367 860005 (Home)
Web www.oswald.co.uk
Email: andrew.oswald@warwick.ac.uk (office)
a.j.oswald@oswald.co.uk (home)

Further Information: The research paper, "Are People Willing to Pay to Reduce Others’ Incomes?", has just been published in Annales D’Economie et de Statistique, special edition volume 64 February 2002.  A total of 29 sessions was performed with 4 subjects each time: the total sample was 116 subjects.  The sample was mostly students and university ancillary staff.  The average age of the participants was 25.

Source: newsandevents.warwick.ac.uk 12 February 2002

Burn the Rich: A Recent Study Suggests That Envy Comes Naturally

by Ronald Bailey

An old Russian joke tells the story of a peasant with one cow who hates his neighbour because he has two.  A sorcerer offers to grant the envious farmer a single wish.  "Kill one of my neighbour's cows!" he demands.

Research by two British economists, Daniel Zizzo of Oxford University and Andrew Oswald of Warwick University, suggests there is a good bit of truth behind that joke.  In a recent study, Zizzo and Oswald ask, "Are People Willing to Pay to Reduce Others' Incomes?"  The short answer to this question is: yes.  They report: "Our subjects gave up large amounts of their cash to hurt others in the laboratory."

Zizzo and Oswald set up an experiment in which groups of four subjects were initially given nearly equal amounts of money.  They then played a computerised gambling game.  During the game two of the players received an extra endowment of cash, a fact to which all of the players were alerted.  At the conclusion of the gambling sessions, each player was given the chance to spend his own money to anonymously "burn" some of the cash won by his fellow participants.  It was made clear that there was no prospect that burning his fellow player's winnings would in any way make him richer.  In fact, if he chose to burn another player's money, he had to pay between 2¢ and 25¢ for each dollar subtracted from the other player's take.

Zizzo and Oswald found that nearly two-thirds of players happily paid for the privilege of impoverishing their fellow participants.  Even as the price of burning went up, the percentage of people who chose to burn other players did not fall substantially.

Why would people pay to hurt others without any benefit to themselves?  Is it not the height of irrationality for a person to harm himself just so he can harm another more?  Zizzo and Oswald believe the desire to burn other people's cash "appears to be strong evidence for the existence of some kind of envy or concern for fairness."

The poorest players chose to burn more of the winnings of the wealthiest, but big winners also burned other players, in their case indiscriminately.  The researchers speculate that winners may have chosen to burn others as a way of maintaining their rank: they wanted to be first more than they wanted to maximise their cash holdings.

Apparently, it matters a great deal whether people believe that others deserve their good fortune.  If they don't believe they do, then less well-off people will further impoverish themselves to bring the rich bastards down a peg or two.  Perhaps the opposition in the Senate to eliminating the death tax on estates over $625,000 can be traced to the sense that trust fund heirs are undeserving.

Oswald and Zizzo's findings may be related to those of a study in which two Swiss economists, Ernst Fehr from the University of Zurich and Simon Gachter from the University of St Gallen, determined that people will incur substantial costs to punish cheaters.  Such subjects engage in what the researchers call "altruistic punishment."  Fehr and Gachter set up a public goods game with a common pot in which all the players could invest.  After all the players were given an opportunity to invest in the pot, the amount in the pot was increased and then split between all players at the end of each round.  The game was set up so that defectors could increase their total winnings by not investing at all, then taking a quarter of whatever was in the pot once the round was over.

In the games in which players had no opportunity to punish defectors, cooperation soon broke down completely and no one invested.  But once the ability to punish - say, by fining cheaters - was added, cooperation became widespread.  Even if punishers lost more than the cheaters they punished, they still deterred cheating.

It turns out that cooperation depends not just on reciprocity ("I'll scratch your back and you scratch mine") but also on retribution ("If I scratch your back and you don't reciprocate, I will punish you, no matter the cost to me.")  The fear of vengeance keeps would-be cheaters in line.

Perhaps players who received extra cash in the game devised by Oswald and Zizzo, analogous to the inheritors of great fortunes, are seen as somehow "cheating."  This perception may incite the leveling instincts that apparently lurk within the human heart.

Socialists often claim that capitalism is based on humanity's worst impulses, greed and selfishness, despite the fact that people who live in societies that participate in markets tend to be more generous and cooperative than those who don't.  Oswald and Zizzo's research suggests that socialists who believe that their ideology appeals to humanity's better instincts have it backwards.  Envy is behind the leveling spirit of socialism.  A truly generous and rational soul would wish others well, especially if they have done no one any harm.

Only an open society in which people clearly see that they have an opportunity to rise seems capable of containing and channeling humanity's envy instinct.  The task for champions of freedom is to encourage people to want more cows for everybody.

Ronald Bailey is Reason magazine's science correspondent and the editor of Earth Report 2000: Revisiting the True State of the Planet.

Source: 21 June 2002 "Think Tanks Wrap-Up" © United Press International all rights reserved

Imbalance of Wealth

Taken from the book Wealth and Democracy: A Political History of the American Rich by Kevin Phillips:

...the boom of the 1990s enriched only the few.  "The top 1% pocketed 42% of the stockmarket gains between 1989 and 1997, while the top 10% of the population took 86%."  ...America has been experiencing not widely distributed prosperity but an unprecedented increase of inequality...

...American wealth has always owed as much to government and to friends in high places as it has to free markets or genuine competition.

"The imbalance of wealth and democracy in the United States is unsustainable."  Democracy must be renewed by an undemocratic plutocracy.  ...the exceptional promise of American life faces its greatest test.  It must persuade Americans to continue to believe in a system that in the past 20 years, under Democratic and Republican administrations alike, has been ruthlessly pillaged by the few at the expense of the many.

Source: The Economist 22 June 2002

See also:

bulletWhy Living in a Rich Society Makes Us Feel Poorer - to function effectively in complex social environments, we need ways to evaluate how we're doing and make judgments about how best to adapt to changing environments.  Such judgments almost always depend heavily on how we're doing relative to others in the same local environment...
bulletHuge Pay Gaps - Due to a lack of effective oversight, chief executive officers are often able to write themselves a blank cheque.  This leads to an economy characterised by fraud and outright theft.  The disparities between the money CEOs get and what the average worker gets have steadily been increasing - 1965: 20 to 1; 1978: 29 to 1; 1991: 56 to 1; 1999: 107 to 1...

What Makes Us Tick?

by Mary Kane

Why do we spend, save, procrastinate?  It's the work of behavioural economists to puzzle out why we do what we do with our money

You have the best of intentions: It's Friday, and you decide you'll get up early Sunday and go for a jog.  Then Sunday comes and goes, and it's one of those things.  You never do get around to that run.

It happens all the time.  People intend to do something, and to do it soon, but it somehow doesn't get done.

The pattern doesn't apply just to exercise.  It is also true, economists are learning, when it comes to making financial decisions.  Although economists long have believed that, when it comes to money, people act in consistent, rational ways throughout their lifetimes, some are finding that the opposite often is true.  People may intend to save for retirement, but fail to do it.  They may have a plan for paying down credit cards, but their paycheques come and go before anything gets done.  And their attitudes are governed as much by their emotions as by reason.

Research into how and why people make financial decisions - a discipline known as behavioural economics - is coming at a time when consumers are key to the US economy's future.  Their spending has kept things rolling for a decade.  But they are cutting back, and some economists worry that cutback perhaps will lead to recession.

There are some tools to predict consumer behaviour, such as the Consumer Confidence Index, a monthly survey that has measured attitudes toward the economy since 1967.  When confidence drops dramatically or flags for a significant period, consumers usually wind up cutting back spending.  But economists actually know very little about why people behave as they do with their money according to Robert Shiller, a Yale University economist and author of Irrational Exuberance, which early on questioned the stock market mania.  "The tradition in economics going back to Milton Friedman has been, 'Don't ask,'" Shiller said, explaining that economists instead have relied solely on mathematical models to evaluate consumer behaviour.

Going even further back, to the 18th century, economists have adhered to Adam Smith's theory that self-interest guides free markets.  Today, behavioural economists are moving beyond those beliefs in an effort to understand the contradictions and complexities in how consumers spend, save and invest.  They're trying to get to the root of people's thinking about money to understand what implications it might hold for public policy.

A traditional economist looks at $100 and considers it exactly that - $100.  A behavioural economist, however, studies how people think about that $100.  How do they treat it if they earned it?  If they borrowed it?  If they gained it through a windfall?

Like traditional economists, behavioural economists prove theories by conducting experiments and demonstrating through statistics that certain outcomes are predictable.  Take the propensity for people to intend to do something without actually getting around to doing it, a behaviour termed "hyperbolic discounting" by Harvard expert David Laibson.  In everyday life, it means that people might do horribly in saving on their own for retirement.  But give them a 4O1(k) plan, removing the temptation to spend by deducting contributions automatically from their paycheques, and they do quite well, Laibson noted.

Americans may recognise their own weaknesses here, for the 401(k) is the fastest-growing way to save for retirement.  Laibson, however, said his idea has further implications: Most companies do not let people sign up right away for a 4O1(k) plan.  Instead, there's a waiting period.  Then, when they become eligible, some employees realise that they should sign up, but procrastinate.  In most companies, a large percentage of workers don't join even after three years' eligibility.  A few companies experimented recently with allowing automatic enrollment for new employees, who could opt out if they weren't interested.  Participation in the plans tripled.

In Laibson's view, people tend to overvalue the present compared to the future.  "It explains a lot of the choices we make," he said.  "People just don't get around to doing the things they should do."

The ideas behind behavioural economics go back to the 1950s, but the field began to expand only about 15 years ago.  Popular interest picked up with the boom in high-tech stocks, as Shiller and some other behavioural economists - joined by Federal Reserve Chairman Alan Greenspan - began to talk about investor behaviour.  About the same time, Cornell economist Robert Frank published Luxury Fever, a book describing the anxiety of the middle class even as the economy boomed.

Some behavioural economists are finding that people not only fail to act rationally in their financial affairs, they don't consistently act in their self-interest.  They instead display altruistic tendencies, even to the point of punishing other people for a perceived lack of generosity, according to Ananish Chaudhuri, assistant professor of economics at Washington State University.

In experiments conducted by Chaudhuri and others, people are given $100 and told they can keep it or share it with another experiment participant, a total stranger.  They can offer to share whatever amount they choose.  But - and this is key - if the recipient refuses the offer, neither participant gets the money.  (Note: This is also called the "ultimatum game".)

If people acted only in their self-interest, no one would be expected to share.  Surprisingly, however, most people not only decide to share, but make generous offers - splitting the money in half or nearly in half.

But in another surprising finding, when the offer is less than a 70-30 split, the recipients often reject it.  The money is a windfall regardless of the amount, Chaudhuri said, but they give up their share to punish the person making an offer they consider selfish.

Shame is another factor in money matters, noted Herbert Gintis, an economics professor at the University of Massachusetts in Amherst.  In his experiments, people play a game in which, if they are not cooperative, other people can take money away from them.  Even people who tend to be selfish cooperate in order to avoid embarrassment, Gintis said.

These findings raise questions about the notion of capitalism as a system based only on selfishness and greed.  And there are examples in life, as well as in experiments: Imagine that you are taking a long-distance car trip.  You stop to eat in a diner where you have never been before and probably never will be again.  You finish, and plunk down the 15% tip that fulfills an unspoken contract with the waitress.  You'll never see her again, in all likelihood.  It's not in your self-interest to tip her.  But you do it anyway.

Altruism, however, has little connection to speculative investing in the stock market, which often is highly irrational, Shiller and others have observed.  For example, people tend to be overconfident in their investment abilities, thinking their stocks will turn out better than they have.

Shiller expects the stock market bubble to continue its burst.  "I think that in about 10 to 15 years the only good thing to come of all this is that the stock market will become passe in one way or another," he said.  A traditional economist might not look at the market in the same way, he acknowledged.  But the "irrational exuberance" of investors over the past few years, he believes, proves the need for a closer look in general at how people behave with money.  "It's something I've been saying for years and years," he added.

Mary Kane may be contacted at mary.kane@neWhouse.com

Source: The Star-Ledger (Morris County New Jersey edition) Monday 28 May 2001; originally from the Newhouse News Service

Also see:

bulletThe Virtue of Virtue (on an earlier page in this section) - for more on why we tip a waitperson we'll likely never see again.

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