Split your pie in half to share, and you may be seen as a Pollyanna. But offer two-thirds of a pie when you have two pies in hand, and you may be viewed as a miser and treated accordingly.
“In theory,” says Professor Boğaçhan Çelen, who studies strategic behavior, “the receiver should happily accept any pie, since some is better than none.” But that’s often not the case. The idea behind the theory is that people are fundamentally rational creatures — homo economicus. But ultimatum game experiments consistently show that people are not as rational — or as selfish — as has been assumed, and, in fact, behave quite altruistically.
In the ultimatum game, two opponents must divide a dollar. One person, the proposer, makes an offer to divide her dollar. If the other player, the receiver, accepts the offer, the proposal is implemented. However, the receiver always has the option of rejecting the offer, in which case, neither player receives anything.
“But when you run the experiment,” Çelen says, “not only do proposers consistently offer much more than one cent, but if they offer too little — for example, 10 cents — then their offers are consistently rejected.”
Why are proposers so generous, and why do receivers set their sights so seemingly high? Çelen and his coresearchers, Mariana Blanco of Universidad del Rosario and Andrew Schotter of New York University, explain the consistency of these behaviors with a concept they call blame-freeness.
Consider a round of the ultimatum game in which a proposer offers 10 cents. “We theorized that the receiver actually considers what she would do in the position of proposer,” Çelen says. “If the receiver herself would have offered only five cents, she accepts the proposal because it meets her standard for blame-freeness— she views the offer as fair. If the offer is less than she herself would have offered, she is more likely to reject it, depending on just how strongly her sense of fairness is offended by so low an offer.”
To test their notion of blame-freeness, the researchers created an experiment in which two players face off against each another in a tournament. Players begin with equal amounts of cash, and each uses some of her cash to purchase whatever amount of effort (in the abstract) she wants to exert in the tournament.
The cost of effort was central to the tournament, since greater effort increased (though did not guarantee) the likelihood of winning, determined by which player finished the tournament with the most cash. Tournament rounds simply consisted of players paying for their chosen level of effort; whichever player had the most cash after deducting the cost of their chosen effort won the round.
But some players were granted an advantage by the ability to buy effort cheaply, leaving other players — those for whom effort cost much more — disadvantaged. A player for whom effort was cheap could chose to purchase lots of effort and still have plenty of cash left over. This allowed the researchers to see whether the players took others’ circumstances into account in their assessment of fairness. For example, one player might be willing to exert lower effort against a disadvantaged opponent when the cost of her effort was low, but higher effort when the cost of her effort was high.
Each player faced off against two others simultaneously, so players could occupy both advantaged and disadvantaged roles in the same session of the tournament. Each player also had an opportunity to punish his opponent by reducing his opponents’ payoff (but doing so also reduced the punisher’s payoff). This gave the researchers the ability to observe if players were consistent in punishing their opponents, confirming if players were using their own behavior as a reference for judging the fairness of other players
Players’ choices about whether or not to punish their opponents differed in rounds of the game in which they were able to observe other players. For example, most of the time a disadvantaged player would forgo punishing an advantaged opponent when given the chance — if she had observed her opponent choose lower effort levels playing in an advantaged position.
“This analysis allows us to capture the context: I’m asking myself, what would I do if I was in his or her position? The evaluation is always subjective; an advantaged player’s idea of fairness is different from that of a disadvantaged player. But we end up with a norm.”
Overall, at least half the time, most people punish acts they deem blame-worthy. Alternately, some people forgo meting out punishment because while they may view an opponent as blameworthy, they don’t view the offense as one that would justify the cost of punishment.
“Our work suggests that rather than think so much about being nice or mean,” Çelen says, “people actually assess what is fair based on their own behavior.”
Boğaçhan Çelen, is associate professor of finance and economics at Columbia Business School.
