So I think the answer to the thread title’s question is “Yes, unless you define the terms in such a way that by definition it cannot be true.”
When I saw the thread title, I immediately thought of examples from Game Theory (like the aforementioned game of “chicken”) in which the best strategy is to act irrationally, or make the other party believe you are irrational, or to make your choices randomly.
You may want to read Poundstone’s other book about game theory, Prisoner’s Dilemma.
Poundstone did mention this possibility. Consider an extreme version - one involving $10,000,000 with $100,000 increments. Now suppose the first player puts $9,900,000 in his pile and $100,000 in the second player’s pile. Due to budgetary constraints, I doubt the experiment has ever been carried out but I’ll concede that for $100,000 the second player might swallow his resentment and take the money.
But let’s face facts - a ten million dollar version of this game is more atypical than a ten dollar version. So let’s bring it down to the level that most people would consider real money: a $10,000 game with $100 increments (a stack of one hundred $100 bills). I think most people would regard $100 as a non-trivial sum of money.
So, if you’re the first player, do you put $9900 in your stack confident that the second player will not refuse his $100 share? If you were the second player, would you accept the $100 offer?
These are interesting points but they’re not really germane to my original question. My point wasn’t “How would this game work in theory?” It was “Here’s how the game worked in reality. Why didn’t the theory predict this outcome?” And I was pointing out that a lot of people faced with this question were trying to adjust the reality rather than adjusting the theory.
It’s obvious why - because the people are playing a different game than the psychologists want them to. That is, the people have grown up in a society where the rational response to a guy taking the lion’s share of something is to oppose the action, because the the transaction doesn’t occur in a vaccuum. By offering negative results to ‘unfair’ transactions you can condition other people to offer fair transactions, which overall is more beneficial to you. So, people correctly learn that the rational response is to snarlingly reject unfair transactions.
Creating an experiment that closely models the situations in reality but change one crucial element that changes everyting are nothing more than cheap gotchas. Sure, in the experiment there’s no benefit to telling the other guy to take his penny and shove it, but that’s not what people know.
Here’s another similar experiment - suppose I tell you that I’m going to take a swing at your face, but stop my fist a centimeter from your eye. Ten bucks says you still flinch.
In the space example, the Romulans are changing the rules of the game to their advantage - which is the rational thing to do. Specifically, they’re changing the rules from “If you offer me a penny, you get to keep the most money” to “if you offer me a penny I’ll rip your arms off”. The latter game will get them more profits, and thus it’s the rational thing to do.
On what basis are you claiming that the Romulan’s actions are irrational, by the way? They don’t sound irrational at all - they respond positively to things that benefit them and negatively when they are denied potential benefits. As noted, this is clearly a beneficial stance, and thus is rational. If they were truly irrational, they would sometimes kill you for giving them the whole pot and sometimes thank you with deepest gratitude for giving them nothing, without rhyme or reason. In which case the thing to do would be to give them nothing and run - or not to play the game with them at all. In which case the Vulcans do get more, being rational when their opponent isn’t.
I’ve read that one and I agree it’s a good book.
But in Priceless, Poundstone was saying that game theory is often based on the Homo Economicus model. And as he points out, there are examples like the ultimatum game that show this model does not always match reality. And if the model isn’t accurate then the theories based on it may not be accurate.
Suppose I create Little Nemo’s Theory of Predicting Human Behavior and I use it to prove that in a given situation “A”, people will choose to do action “B”. And then you come along and discover that when people are actually in situation “A” they choose to take action “C”. Would I be justified in arguing that my theory is right, it’s just that people make the wrong choice? I think most people would disagree with that argument. A theory for predicting human behavior is only good to the degree that it can accurately predict human behavior. Saying it’s still a good theory even if it doesn’t work is ridiculous.
Same thing with the Homo Economicus model. It predicted that people would take the penny. Real world testing showed they didn’t. So economists need to stop trying to redesign the experiment so it’ll prove the model and start redesigning the model itself.
Oh, c’mon. You’re talking about reality and using Romulans as one of your examples? 
Honestly, my post IS dealing with why the theory doesn’t predict the outcome in reality. I say the real world amount of the pot is germane to the real world outcome of the game.
What if it were a $10 million pot, and I was offered 1 penny. By turning down the penny, I can cost the cheapskate bastard player A $9,999,999.00. I’d pay TWO cents (actually throw in one of my own) to screw the other guy.
I even claim that this is a rational response, since in the real world it is a good thing to curb excessive greed.
I think there’s a few problems with this game. First, as discussed upthread, I think there’s a flaw in the implicit assumption that valuing money is rational, while valuing whatever you “get” for rejecting an unfair deal is irrational. So, what we’re really seeing in practice is an experimental ratio between these two values.
Second, something that I didn’t see said explicitly, is that the value of money is decidedly NOT linear. That is, the value of $10 compared to $5 is roughly twice as much, but comparing $5M to $10M, they’re actually much closer. This is exactly why it doesn’t seem so irrational to reject 1 cent in the $10 scenario, but why it seems silly to reject $100k in the $10M scenario, because even though the ratios between the two amouts is the same, in the way we value money, the latter appears to be a somewhat more fair deal. I’ve actually seen some formulae that attempt to put a rate to the deterioration of the value, but I think it’s too muddy because it will differ heavily between two people, especially if they have different overall values and economic backgrounds.
Either way, in light of these, I think it would be irrational of the first player to assume the second player will value money in the same way that he does. In reality, a rational player ought to be aware of these competing values, estimate what he thinks it would be worth, add a little bit of a buffer, and make that offer. He can basically be absolutely sure he’ll get 50%, unsure if he’ll get 99%, or some level of the two in between.
Walking away from a penny…big deal…and you get the satisfaction of sticking it to the asshole and him not getting his $9.99.
Offer the same split of a billion dollars in one pile and a million dollars in another and I would be very surpised to see anyone refuse the million.
Make the reward nontrivial and people will be more rational methinks.
Thinking about this some more, I have to dispute the OP’s case about someone offering a 50-50 split as ‘irrational’. I think it is entirely rational.
The reason being that if I’m in charge of dividing the money then I have to realize that if I do not offer a 50-50 split and the amount in the other guys pile is below their ‘trivial’ amount then they will most likely reject it. The reason being is that it is that many people will dismiss a trivial amount…because…well who cares? I don’t get a penny…big whoop.
So if the pot is $10 I had better put $5 per pile or I probably won’t get it because $5 is a trivial amount for near everyone.
However, if it was a million dollars, that is different. I could probably take $900K myself and put $100k in his pile and he would most likely take it.
Most likely.
The problem is that I don’t know who that other guy is. he could be some poor schlub who has been unemployed for a year and has 3 hungry, shoeless kids at home…or he could be the freakin CEO of Microsoft and $100K is trivial to him.
SO if I offer $900K to $100K I will most likely get it…but I may not. Is it really worth risking $500K to get an extra $400K?
Shit man, $500K is alot…and I don’t want to risk it. I owuld probably offer an even split of $500K in each pile and take the guaranteed half a mill.
I think that is rational. Offering uneven split is gambling and may not be as rational.
Exactly. This is my point. There’s no need to explain why people make an irrational 50/50 offer. Because the way the game actually gets played, a 50/50 offer is rational.
So the problem is not the model, but the definition of ‘rational’ used by the experimenters. If they redefined the term, the model might work perfectly.
There are many games where the “rational” move by a player is opposite to what would be rational were players to form an alliance (either explicitly, or implicitly by applying the Golden Rule). The Prisoners’ Dilemma is an obvious example, but there are many practical problems in economics where the “rational” moves lead to suboptimal outcome and a way should be found (e.g. government coercion) to improve the outcome. I’m too lazy to come up with more than one example right now. (Much of the silliness from libertarians and right-wingers is a failure to understand this, somehow thinking Ego-only greed modeling is a proven path to optimality.)
I’m not seeing it.
Firstly, what theory are you referring to? There isn’t one single “game theory”. Game theory is just a term given to an entire field of study composed of many theories, hypotheses and trials. All of those theories that I have ever seen either explicitly or implicitly acknowledge that humans are emotional, biological creatures, and that we place value on feeling contented and not feeling physical or psychic pain.
If it were otherwise you wouldn’t need ot go to these lengths to prove the theory wrong. you would only need to point to Hollywood, a massive economy driven 99% by people’s desire for contentment and that adds wealth and material possessions to nobody except those peddling the product. Yet no game theory has ever predicted that Hollywood doesn’t exist.
Can you point to an example in this thread of where you think that someone is trying to adjust reality, rather than simply pointing out blindingly obvious observations form this experiment?
From what I said in the OP:
So what reality are people “adjusting”? The reality is that the (considering dollar return only) “rational” solutions predicted don’t play out when the experiments are conducted. Some of us are explaining why the theory doesn’t match reality, by pointing out where reality differs from what’s proposed by the theory, starting with the idea that people only care about monetary gain. If anything we’re modifying or proposing a different theory - the reality is what it is, unmodified.
Right, so you are referring to **strictly economic ** theories. And the people here are all pointing out that this is in no way a strictly an economic transaction. IOW you are trying to use a hammer to chase butterflies.
Firstly, how is that adjusting reality? It seems that the only person attempting to adjust reality is the one who denies the reality that most transactions have an emotional component.
Secondly, most economic theories don’t say any such thing. Most economic theories have no problem at all accepting the existence of Hollywood, ie that most people will trade hard cash for a subjective experience. Can you please name one of these economic theories that denies the existence of Hollywood?
The only problem I’m seeing here is that whatever theory you are working with is completely incapable of assigning a value to subjective gains, such as pleasure or social status. But once again, the only denial of reality lies within that theory. In the real world we all know that people will spring 250 bucks for a concert ticket that will give them absolutely no objective gain. In the real world we don’t *need * a theory to explain that, because we all *know *why people do it.
Whatever theory you are working with is completely unable to incorporate the indisputable, real world fact that people do indeed place a monetary value on pleasure, social status, justice and many other subjective factors. There is nothing irrational about valuing such things, any more than it is irrational to value lumps of shiny metal.
Once your theory is able to incorporate the real world observation that people do place a rational, monetary value on such things then the paradox created by not valuing them disappears. It is perfectly rational to value those things more than a disc of shiny metal, and as such doing the rational thing is the rational thing to do.
There is no paradox once your model stops denying reality.
Perhaps we’re in agreement then.
The game itself is simple. It makes tic-tac-toe look deep. So I don’t think anyone can claim that the people playing it don’t understand what’s going on.
I outlined what the rational economic theory (the Homo Economicus model) would predict as the outcome. Again, nobody seems to be disputing this.
And I said that the actual outcome of the game differs from what the theory predicted. Again, nobody seems to be disputing this.
So the issue is why is there this difference between theoretical predictions and actual outcome.
One possibility is that the game is flawed. The theory is fundamentally correct as described but the game is poorly designed so its outcome is a fluke. This the line that some people here seem to be taking, for example those who say the game would work right if the amount of money involved was different.
Another possibility is that the results are being misinterpreted. There are unforeseen factors which affect the way the game was played. So what appeared to be an irrational choice was actually a rational choice. These people are also “adjusting” - an example would be those who introduce the utility values I mentioned before.
Another possibility is that the theory is fundamentally wrong. It says people will act rationally. What they did in the game shows people act irrationally.
The fourth possibility is that the theory is correct in predicting that people will act rationally and the game, as described, is a valid demonstration of this. The apparent problem is that rationality can be more complicated than it appears. People can judge rationality by the outcome they achieve rather than the rationality of the actions they choose (especially in a game as simple and transparent as this one). And an irrational action might achieve a rationally desirable outcome. So the rational person will choose an irrational action to achieve a rational goal. The person is acting rationally by doing something irrational.
That’s adjusting. You’re changing the outcome that people supposedly want. I’m not doing that. I didn’t say people prefer a 50/50 option because they desire a sense of fair play as much as they desire money. I’m saying they choose a 50/50 option because it earns them more money.
To be specific here, the game that the OP specifically focuses on the ultimatum game:
Now, the ultimatum game differs from reality in two significant ways: one, it considers only monetary returns, and two, the game is played only once “so that reciprocation is not an issue” (to quote the linked wiki page).
This should make it clear that the express purpose of the game is to deliberately set up a scenario that humans will do poorly in, because humans are very accostomed to there being emotional components and potential reciprocation. (We’re so used to it that the OP accidently included reciprocation himself.) The fact that humans do poorly on a test that’s designed to make them do poorly is no surprise; it just shows that we tend not to forget our lifetimes of conditioning (or our emotions) when we get taken to the lab.
ETA: Speaking of emotions, if person A offers $1 and keeps $9, then person B wins by turning down the dollar, becuase person A loses eight potential-dollars more than he does, making person B come out ahead. Victory!
Not really. One can make a case that player 1 has slightly more claim to the money, “owning” it in a sense. Few people would feel insulted by a 51/49 split, so a 50/50 split is leaving money on the table, and not optimal. The optimal choice is a split which involves the least money player 2 will accept.
The discussions of this I’ve read emphasize fairness. While this experiment is a one-time thing, actually our reactions are a result of fairness situations throughout history, and is thus actually the nth running of the experiment. While the person rejecting a penny loses out in the short run, rejecting pennies throughout our history has increased our return - few player 1s would even offer a penny, knowing full well it will be rejected.
I am disputing that this is *the * rational economic theory, and the Wikipedia article itself disputes that: “competing models suggest ways to bring the cultural preferences of the players within the optimized utility function of the players in such a way as to preserve the utility maximizing agent as a feature of microeconomics.”
So what we really have is one very narrow reading of the Homo Economicus model failing to predict the outcome. Numerous other rational economic models do indeed predict this outcome.
Because the theory you are choosing to use is deliberately simplistic and limited. In the same way Newtonian physics doesn’t predict everything because it is simplistic and limited, yet remains a very good working model for many applications.
The issue however isn’t, as you suggested in the OP, that the rational choice is to be irrational. The issue is that the rational choice hinges on more than just irrationally maximising the number of lumps of shiny metal that you own.
In what way is that adjusting reality. You keep repeating this assertion without explaining it. Are you disputing that in the real world most transactions have an emotional component based on pleasure, social status, justice etc? If you are not disputing that then how exactly is making that assertion an adjustment of reality, rather than an adjustment of the model?
You overlooked the fifth possibility.The one that seems obviously true. the fifth possibility simply states that it is perfectly rational to value subjective gains such as pleasure, social status and justice beyond a penny. As such if someone can achieve social status, justice or pleasure for the cost of a penny then they would be irrational *not * to lose the penny.
To me this seems obviously true. People will spend $250 for a concert ticket when it gives them nothing but pleasure and social status. People will pay a dollar more for “eco-coffee” out of a sense of social justice. People will spend time and money on gas to avoid shopping at a a store that refuses to serve Hispanics. I’m going to go out on a limb and say that *you * would do all those things.
So quite clearly people don;t make their transactions bases solely on economic returns. Subjective returns are at least as important as the economic returns. And there is nothing more irrational about valuing those subjective returns than in valuing a lump of shiny metal.
IOW according to interpretation five, the game is well designed, the results are being interpreted perfectly accurately, the people playing this game are acting perfectly rationally and are acting rationally by doing something rational.
The flaw lies not in the game or the players. The flaw lies in the inability of the narrow reading of the model to assign any value to anything other than shiny lumps of metal. That is obviously an irrational and illogical restriction. Valuing a lump of metal isn’t more rational than valuing a good laugh. The only irrationality lies in the narrow reading of the model.