drz-400
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Where does the $100 come from?
I'd split $50/$50, but I still want to know where the money is from.
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. However, if we bring human psychology into it, it would depend on the personalities of the players. Probably a $50/$50 split would work most often.
Traditional "efficient market" economics will tell you to split it $99/$1 in your favor...but in practice that doesn't work because people are NOT rational actors, and are more than willing to waste their own money in order to screw you over. If I'm not allowed to know anything about the other person ahead of time, such as their nationality/culture/gender, then I would probably split it about $50/$50. But if I know that the experimenter is pulling other people from, say, the United States, then I'm much more likely to split it about $65/$35 in my favor.
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.
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.
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?
Harry Guerrilla said:CC says "pure" which I think is incorrect because in order for it to be pure, you would have to always include psychology.
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.
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.
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.
The Chicago school?
Harry Guerrilla said:If they would adopt it as a general axiom instead of a strict rule, they would be heading in the right direction.
Harry Guerrilla said:I don't understand how people could even theorize about economics without considering behavior, especially trained professors.
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.
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.
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.
It's amazing how people will contort reality to match their mathematical theories, rather than designing theories to match reality.
I completely agree that it's rational for Player A to offer more than $1 to the other player; it's rational to assume the other player's irrationality. I just disagree with your assertion that if you were Player B, that it would be economically rational to decline $1. That's not the case unless you're going to be interacting with this person again in the future, which the scenario did not indicate.
50/50 is more than fair.
Of course if B refuses, I kick him in the nuts. If I am B and A offers less, I kick him in the nuts.
So in conclusion if I get nothing, someone gets kicked in the nuts.
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