The ultimatum game, a key experiment showing intrinsic fairness and altruism among strangers

Knowledge will come only if economics can be reoriented to the study of man as he is and the economic system as it actually exists.
Ronald Coase

There is a line of economic research on altruism that get only little attention in the media, which is why I want to report on it here. There is by now solid evidence that humans can behave altruistically towards strangers. This is surprising because a naive version of evolutionary theory would expect that altruism is only possible among kin. It also goes against the basic assumptions of economics, game theory and public choice theory, which all assume that humans only have an eye for their self-interest. These assumptions are often defended referring to evolution by stating that you need to be an unapologetic egoist for optimal reproduction. I mention this, because non-academics may think it is natural to assume humans can be altruistic and wonder why one would research something that trivial.

It is not controversial science. There are hundreds of scientists working on it. Almost every month Nature or Science publishes an article on altruism. And at the University of Bonn, where I work, Reinhard Selten is emeritus professor and got his Nobel price for experimental research on the ultimatum game. That is also how I heard about it, our University Magazine had an article on Selten and this beautiful experiments.

In a social setting, where there is an opportunity to build up a reputation, altruism can be explained. In this case, altruism may lead to future benefits and one may even argue that it is thus not real altruism. However, this type of altruism is expected to break down when a group is under pressure and may soon dissolve, but humans also collaborate under such difficult circumstances. Furthermore, reputation-building naturally does not work under conditions of anonymity, while experiments show that humans also collaborate with strangers they will never see again. Our ability to collaborate with non-kin is an important innovation that contributes much to our success as dominant animals.

Ultimatum game

A very simple and pure economic game, which thus shows the problem very clearly, is the ultimatum game (Güth et al., 1982). In the ultimatum game, two players must divide a sum of money. The first player has to propose a certain division. The second player (responder) can accept this division or reject it; in the latter case both players do not receive any money. In its purest form, the experiment is played only once and anonymously with players that do not know each other.

When the article described the experiment, I wondered what was interesting about that. Naturally people offer 50% and the responder accepts this. Not? That only showed my lack of economic training.

Good ideas, motivation and economics

Steven Johnson recently wrote the book Where Good Ideas Come From: The Natural History Of Innovation. In this book he argues that good ideas mostly do not come as a sudden spark out of the blue, an epiphany, but rather grow slowly over time by combining ideas. His recommendation for finding good ideas is to create a diverse network with people with very different interests to increase the chance of seeing a new combination. The latter is similar to recommendations from creativity books to read broadly. Also personally, I like to read about a broad range of topics; reading just meteorology papers, it is highly unlikely that I will get an idea a colleague did not yet have. On the other hand, you do need to know your field to know what contribution is needed. Johnson also advices to write up your ideas and ideas of others and to discus them freely. Another advice from Johnson to organizations is to give employees the freedom to explore wild ideas in part of their time.

In the last chapter of the book and in an article for the New York Times, he answers the question why most good ideas come from amateurs and academics rather than solo entrepreneurs or private corporations. His answer is that the commercial guys are handicapped by keeping their ideas secret.

That may be part of the answer. Another is likely that people are not that much motivated by money when it comes to such complex cognitive tasks. As Daniel Pink explains in a talk at TED and in a beautifully made animation, offering people more money will increase their productivity for simple manual tasks. However, for tasks needing only a little cognitive skill people actually often perform worse if they are given a large monetary reward. Daniel Pinks equation: Motivation = autonomy + mastery + purpose.

Another indication that people are not solely motived by money, but also by concepts such as fairness comes from academic economics, from experimental micro-economics. The deviation from mainsteam economics (the neoclassical synthesis), with its concept of a homo economicus, who only cares about monetary gain, is beautifully distilled in a classic simple economic game, the ultimatum game.

In the ultimatum game, person A get to divide a sum of money. Person B has to agree with this division. If B doesn't, no one gets any money. When I first read about this game, I was wondering why it was interesting; people would simply split 50/50, wouldn't they. However, then it was explained that if B would be a good homo economicus, he would accept any offer, because it is better to receive something as getting nothing. Person A knows this and will only offer the smallest possible amount. As expected, reality looks very different. If Person A does not offer at least 30 to 40 percent, it is quite likely that B rejects the offer. Typically A offers 50 percent. This also happens if A and B do not know each other, if the game is only played once, and the results is similar in any culture or group. This game and many similar ones have led to the conclusion that humans have a innate sense of fairness.

This is a combination of three ideas. It is not yet sufficient to derive a new economic theory, but it might be a start. Do you have any ideas that together may make this network of ideas more fruitful?

Further reading

More posts on economics.

More posts on creativity.