American Politics and the Ultimatum Game.

TrumpVsGOP.jpg

Imagine you have been invited to take part in an activity called the Ultimatum Game.  The game is pretty straightforward: Two players, that remain completely anonymous to each other, are randomly assigned to play as either the Proposer or the Responder.

In this game, the proposer is given $20 and is given the option to give the responder any amount of money – from $.01 to $20.  The responder has a choice: Accept the offer or reject it.  If the responder accepts the offer, the money is split accordingly.  But if the responder rejects the offer, neither player receives anything. The game is only played once.

Imagine you have been randomly assigned to play as the responder and then the offer comes in:  You have been offered $2.

Do you accept it or do you reject it?

If you are like most people, you will reject this offer.  But why? Surely $2 is better than nothing[1].

The Ultimatum Game is a simple demonstration that individuals are not ‘rational’ – at least not in the maximizing financial gains sense.  Instead, individuals have a desire to punish unfairness; and this motive runs deep.  Similar experiments have been run with infants and other species and analogous findings have been found. At our core – we are even willing to sacrifice our own personal gain to ensure that others are punished.

But what does this have to do with American Politics? A lot

It’s no surprise that Americans are unhappy with the current state of affairs.  Congress’ approval rating is an abysmal 12%.  The two candidates running for president have higher disapproval ratings than approval ones.  A December 2016 poll found that 69% of people are at least somewhat angry about the “way things are going” and that “the political system seems to only be working for the insiders with money and power, like those on Wall Street or in Washington” – and these numbers have only been climbing.

In 2008 – two movements were established; On the left was ‘Occupy Wall Street’ and on the right was the ‘Tea-party.’  Although these two groups might seem to be as polarizing opposite as can be – they were fueled by similar motivations.  Both had felt cheated by the social contract that had been violated[2].  Americans had been promised: work hard, get an education, put in your 40 hours per week and you’ll be guaranteed a comfortable life for you and your family.  When that promise had been violated, Americans felt cheated and someone needed to be punished[3]. The difference was that the left blamed the money in politics, the right blamed the politicians.  While not everyone joined in at the protests in Zucotti Park or with the Tea Party – many could identify with their frustrations.

occupy-wall-street-vs-the-tea-party-e1320296373609

You may now be able to see the parallels with this year’s surprise candidates.  Bernie Sanders championed to reform money in politics, and went from being a candidate no-one had ever heard of, to giving Hillary Clinton a run for her money. Donald Trump, ‘the outsider.’ went from being every punchline on late-night Television to the presumable Republican nominee.

It is now all but certain it will be Clinton vs. Trump to battle it out for President of United Stated of America.  However, despite Trump having proven everyone wrong in the Republican Primaries, people are still not giving him a chance of beating Clinton[4].

But Clinton symbolizes more than anyone, what the typical U.S. citizen has come to hate and Trump, with the chaos and disorder he brings, is a symbol of a population that is growing increasingly frustrated.  Every pundit that complains about the pandemonium that a Trump presidency would bring – simply gives more fuel to those craving it.

Similarly, the upcoming Brexit vote is a virtual coin flip, despite the evidence that a leave vote would be disastrous.  But to many, it doesn’t matter; at least not right now. If the leave side wins, it will be, in part, fueled by many who don’t care about the consequences but simply want to voice their frustration at system that has let them down.  They may wake up to a sober-second thought, but the damage will have already been done.

In the Ultimatum Game, people aren’t oblivious to the fact that they are losing out on a few dollars, but that doesn’t matter; the motive to punish simply overpowers it.  Try to explain that they made the irrational choice by rejecting the offer and they’ll look at you like you’re the crazy one.  Now, while there are definitely a number of Trump supporters that honestly believe he will do a good job as President, many more simply don’t care. The motivation is simply to punish those that have acted unfairly.  Some people just want to see the world burn[5].

 

 

 

 

[1] And because you are anonymous and the game is only played once, there’s no value in signalling that you are not to be cheated.  Also there’s some evidence that this is primarily the function of western norms of fairness and economic markets.

[2] 2008 was the ‘straw that broke the camels back’ but the frustration had been growing for decades.

[3] Another blog post could be dedicated to this point.  While I center on politicians and the financial industry here – one can see how the same frustration and subsequent blame is placed on other groups (e.g. immigration).

[4] I’ve argued that what we’ll likely see Trump do against Clinton is attack her large financial donors and similarly make certain promises regarding financial and corporate industries.  He likely won’t talk about taxing the rich – but rather focus on greater punishment for those who have acted unethically and/or about those that give money to politicians.  He’ll also continue to talk about manufacturing and trade, where people have likely felt this inequality the most.  Places like Wisconsin or Michigan are ripe for this rhetoric. Whether that will be enough to sway those on the left remains to an open question.

[5] Michael Cain (Alfred) – The Dark Knight.

Advertisements

4 thoughts on “American Politics and the Ultimatum Game.

  1. Isaac June 28, 2016 / 10:30 pm

    There are actually strong game-theoretic reasons that the responder in the “Ultimatum Game” would reject the $2. From here on out, I’m assuming that both the proposer and responder both have perfect knowledge of how the game works (i.e. both know that there’s a total of $20 at stake).

    If, as you say, it was “rational” for the responder to accept the $2 (because $2 > $0), then what’s preventing the proposer from reducing the proposed amount? After all, why shouldn’t the responder accept $1, or even $0.01? After all, these are all dollar amounts that are strictly greater than 0, so the responder would be passing up free money.

    The thing is, by making it so the responder can veto the proposed amount, it essentially keeps the proposer in check. The proposer knows that if he lowballs the responder too much, then he gets nothing.

    From this perspective, it’s actually rational for the responder to reject the $2. If such a game were to ever played again by any two other players, then the proposer would know what would happen if he played unfairly. This way, it’s actually rational for the proposer to increase the amount he’s proposing.

    Do you see what I’m saying here?

    • playdevilsadvocate June 29, 2016 / 6:01 pm

      Thanks for the feedback

      There’s a few parts to your comment that I’d like to address.

      First, I agree that, given that the proposer knows (or has some implicit probabilistic knowledge) that unfair offers will be rejected, it makes sense for him/her to offer an amount that will not get rejected. However, if the proposer knew that he was playing against a rational computer which knew the rules of the game (one-time and anonymous) with the explicit goal to maximize profit, they would surely only provide the computer with $.01.

      Second, for the responder though, your reasoning only holds if (as you mention) ‘the game were to ever played again by any two other players’ but it’s a one-time anonymous game. Thus, given these constraints, there’s no way to truly ‘keep the proposer in check’ and thus it’s not rational to reject the offer. That is, if you set up a computer and provided them the rules of the game and the goal to maximize profit, it logically must accept any offer – and in that sense, rejecting the offer is not rational.

      But that leads me to the third part, which is that what is interesting, is that people do play it as if it wasn’t a one-time game and that’s actually how everyone typically ‘plays’ everything. We often are willing to incur personal costs to punish those that violate moral norms. Because this tendency is seemingly innate – it becomes rational, because (almost) everyone enforces these norms. It then becomes a prisoners dilemma, but one in which (almost) everyone co-operates, thus leading to an optimal solution.

      Note, however, that if you had 100 people playing the game (one-time and anonymous), in which 50 people played ‘rationally’ (e.g. accept any offer) and 50 people to play ‘normally’ (e.g. punish unfairness) and a computer proposer that would randomly propose different amounts, the people who would do the best, would be the group of individuals that played ‘rationally’ and didn’t punish the unfair proposals.

      The one-time anonymous aspect of the game changes it. When it’s not one-time and/or not anonymous, punishing leads to the ‘rational’ profit-maximizing outcome. Humans didn’t evolve to engage in one-time anonymous cooperation and so it obviously breaks down there. In fact, it’s rare that any situation is ever one-time and anonymous, even today. We can see a similar effect with the Brexit vote (which I was generally right about), in which, the EU would benefit from re-establishing trade deals, etc. with the UK. However, in order to enforce cooperation among the rest of the EU members, they must send a signal to other members that leaving will be punished, and thus will likely negotiate with tougher sanctions. The Ultimatum Game is not the best analogy to U.S. and World Politics because of this. I used it to demonstrate how important punishing is to people. And I suppose, one could make the case that even if in the short-term ‘punishing the establishment’ results in worse outcomes, it still may be ‘rational’ in the long-run, because it is not a one-time event.

      • Isaac June 30, 2016 / 6:09 am

        Thank you for such a thoughtful reply 🙂

        That’s a really cool insight about how this is similar to the Prisoner’s Dilemma–I hadn’t thought of that before. Now that I understand what you were saying, I think you might really be on to something. By the way, have you ever thought about looking into actually studying Game Theory? I mean, you clearly know some of the basics and it appears that your mind naturally thinks about the world in that way. After all, mathematics is unbelievably fun, and it just keeps getting deeper, richer, and more interesting the more of it you learn.

      • playdevilsadvocate July 1, 2016 / 9:30 pm

        Actually I’m finishing up a PhD in Consumer Behavior. So, I come at these problem from the individual/psychological level.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s