Newsflash: People are Still Irrational
Game theory is, at its core, the study of rationality. In any given situation, game theory tries to use payoffs and probabilities to find the moves that make the most sense for players to make. And that’s certainly a great goal — except when the players are real people. One of the largest challenges with using game theory is that, sometimes, players don’t act purely based on payoffs and probabilities, often making its predictions unreliable and inaccurate. In a 2009 study out of Hokkaido University, authors Toshio Yamagishi et al. look into this problem and end up further-proving what everyone already knew: that people are [still] irrational.
The way that the authors did this was by playing a series of games with participants, trying to judge what effect the perceived fairness of outcomes had on player’s actions. The first game that was played is called the Ultimatum Game. In this game, there are two players: one is designated the proposer and the other is designated the responder. At the beginning of the game, the proposer is given an amount of money and told that he must offer the responder some amount of it. In addition, both players will only be able to keep their money if the responder accepts the proposers offer. If he rejects it then both players leave with nothing.
Game theory predicts that the responder should accept any offer at all because, no matter what, the payoff would be larger than if he rejects the offer. In addition, game theory also predicts that the proposer knows that player one should accept anything, and thus should offer the smallest non-zero value possible.
In reality however, the game doesn’t quite play out like game theory predicts. Instead, the responders only accepted offers that they deemed as “fair”. If, for example, the proposer offered only $100 out of a possible $1000, responders rejected the offer over 70% of the time. This result had been shown before in previous studies, with the assumed reason for this behavior being that the responder was “punishing” the proposer for being unfair.
Yamagishi et al. then decided to challenge this assumption and altered the game in one key way: in their new “Impunity Game”, only the responder loses his money when he rejects the offer. The proposer keeps his money regardless. The game theory prediction for this game is the same as with the Ultimatum Game – the responder should accept any offer, especially because now the only one being hurt by rejection is himself.
Even though a larger portion of the players now accepted unfair offers, a still sizable 40% rejected offers which only gave $100 out of $1000. Since rejection in this case wasn’t punishing anyone but the responders, the previous theory of rejection as punishment had to be slightly off. Yamagishi et al. now proposed that the rejections were a way of expressing disgust to the proposers. The authors slightly tweaked the game once more to see if this new explanation was reasonable. In their final “Private Impunity Game”, the only information allowed to pass between the proposer and the responder was what the offered amount was — even the decision of the responder was not relayed back to the proposer.
The results of this game were statistically identical to those of the normal Impunity Game — over 40% of players still rejected the most unfair offers. Since the responders weren’t able to send any messages to the proposers, the authors were once again forced to reconsider their explanation. This time, the authors concluded that it must simply be the feeling of disgust that caused the responders to reject the unfair offers.
So there it is — the players would knowingly lose out on hundreds of dollars simply because they felt disgusted with an offer, even if the offer was still benefiting them. In doing so, the players in this experiment yet again put on exhibit one of the largest problems with game theory: it’s extremely hard to use rationality to predict inherently irrational human beings.
Source:
Yamagishi T., Horita Y., Takagishi H., Shinada M., Tanida S., Cook K. S. 2009. The private rejection of unfair offers and emotional commitment. Proc. Natl Acad. Sci. USA 106, 11 520–11 523.
Available at: http://www.pnas.org/content/106/28/11520.full