Natural Rationality | decision-making in the economy of nature
Showing posts with label fairness. Show all posts
Showing posts with label fairness. Show all posts

6/8/08

Ultimatum, Serotonin and Fairness

A new study links serotonin levels to Ultimatum decision: less serotonin is correlated with a higher rejection of unfair offers, suggesting that it "plays a critical role in regulating emotion during social decision-making"

[From ScienceNOW]

Deal or No Deal?

By Constance Holden
ScienceNOW Daily News
05 June 2008

What if your friend had a large apple pie but gave you only a sliver? Would you throw the piece on the floor in protest? Maybe, depending on your brain chemistry. New research suggests that such emotional decisions can be influenced by a shortage of the neurotransmitter serotonin.

Researchers have linked low levels of serotonin in the brain to various mental states, including depression and impulsive, irrational behavior. A team headed by neuroscience Ph.D. student Molly Crockett of the University of Cambridge in the U.K. wondered whether the neurotransmitter would affect how people play the ultimatum game, an experiment used by economists that shows how people's economic decisions are sometimes irrational.

In the game, a "proposer" is given a sum of money, part of which he or she offers to share with a "responder." If a responder turns down the offer as too low, then neither player gets any money. What the ultimatum game reveals is that even though a responder would always gain by accepting the offered share, he will sometimes cut off his own nose to spite his face, as it were, punishing a proposer by rejecting an unfair offer.

In the current study, the researchers recruited 20 volunteers and asked them to fast the evening before the game. The next morning, some of the volunteers were given a drink chock-full of every amino acid the body needs to make protein, save tryptophan, an amino acid from which serotonin is manufactured. The result, says Crockett, is that the amino acids rush to the brain, "crowding out" any residual tryptophan and creating a temporary shortage of tryptophan and therefore serotonin. Control subjects were given drinks that contained tryptophan.

Both groups then played the ultimatum game as responders. The lack of tryptophan did not affect the subjects' general moods or their perceptions of the fairness of an offer, the team reports online today in Science. It did, however, appear to make people more likely to reject unfair offers. For example, when they knew that they were being offered only 20% of the pot, 82% of the acute tryptophan depletion group rejected the offer over multiple trials, whereas only 67% of the placebo group did.

The research bolsters the view that rejection of an unfair offer is "an emotionally driven impulse," says Crockett. To heed more rational monetary considerations in the face of an unfair offer, she says, requires that you "swallow your pride"--or the sliver of pie--which is a form of emotional control.

The new work is "a significant advance" in understanding the neural mechanisms of how emotions impact decision-making, says neuroscientist Michael Koenigs of the National Institute of Neurological Disorders and Stroke in Bethesda, Maryland. Psychologist Ernst Fehr of the University of Zürich, Switzerland, cautions, however, that the paper doesn't really address which behavior is rational or irrational. Rejecting low offers, he says, could be the result of a rational calculation about the value of fairness rather than an angry impulse.



4/14/08

On Fairness and Tax

A colleague of mine send me this great blog post from The Economist's View, about fairness and tax. The bottom line: "the perception of fairness matters"



11/12/07

Economic neuroendocrinology : 2 new studies

Two interesting papers in press in NeuroEndocrinology Letters:

1. Smokers are fairer in the Ultimatum Game when they have to split cigarettes than when they split money:

  • Takahashi, T. (2007). Economic decision-making in the ultimatum game by smokers. Neuro Endocrinol Lett, 28(5). [pubmed]
2. Social evaluation significantly increases generosity in the dictator game:

Takahashi, T., Ikeda, K., & Hasegawa, T. (2007). Social evaluation-induced amylase elevation and economic decision-making in the dictator game in humans. Neuro Endocrinol Lett, 28(5).[pubmed]



10/12/07

The Dictator Game and Radiohead.


As you may know, Radiohead recently announced that they would let fans decide what to pay for its new album, In Rainbows. The situation is thus similar (but not exactly) to a Dictator Game: player A spits a "pie" between her and player B, but B accepts whatever A offers. Thus, contrarily to the Ultimatum Game, B's decisions or reactions has no influence on A's choice behavior. Radiohead fans were thus in a position similar to A's position. If we make the assumption that they framed the situation as a purchasing one in which they choose how much of the CD price they want to split between them and the band, and given that a CD is typically priced £1o (roughly 20 U.S.$), then the fans are choosin how to split 10£ between them and Radiohead. Usually, experimental studies of the Dictator Games shows that 70% of the subjects (A) transfer some amount to Players B, and transfer an average of 24% of the initial endowment (Forsythe et al. (1994). Hence if these results can generalized to the "buy Radiohead album" game, it would suggest that about 70% of those who download the album would pay an average of £2.4 , while 30% would pay nothing. An online survey (by The Times) showed that this prediction is no too far from the truth: a third of the fans paid nothing, and most paid an average of £4.

An internet survey of 3,000 people who downloaded the album found that most paid an average of £4, although there was a hardcore of 67 fans who thought that the record was worth more than £10 and a further 12 who claimed to have paid more than £40.

Radiohead could have earn more money just by using a simple trick: displaying a pair of eyes somewhere on the website. With this simple trick, Bateson et al. dicover that people contribute 3 times more in an honesty box for coffee when there is a pair of eyes than when there is pictures of a flowers (Bateson et al., 2006)

Also, when a pair of eyes is displayed in a computer screen, almost twice as many participants transfer money in the dictator game (Haley & Fessler, 2005).

The New York Times has a good piece on fan's motivation to pay, with an interview of George Loewenstein: Radiohead Fans, Guided by Conscience (and Budget).

Related posts

References
  • Bateson, M., Nettle, D., & Roberts, G. (2006). Cues of Being Watched Enhance Cooperation in a Real-World Setting. Biology Letters, 12, 412-414.
  • Forsythe, R., J. L. Horowitz, N. Savin, and M. Sefton, (1994). Fairness in Simple Bargaining Experiments. Games and Economic Behavior, vol. 6(3), 347–369.
  • Haley, K., & Fessler, D. (2005). Nobody’s Watching? Subtle Cues Affect Generosity in an Anonymous Economic Game. Evolution and Human Behavior, 26(3), 245-256.
  • Hoffman, E., Mc Cabe, K., Shachat, K., & Smith, V. (1994). Preferences, Property Rights, and Anonymity in Bargaining Experiments. Games and Economic Behavior, 7, 346–380.
  • Leeds, J. (2007). Radiohead to Let Fans Decide What to Pay for Its New Album. The New York Times.
  • How much is Radiohead’s online album worth? Nothing at all, say a third of fans. The Times.
  • http://www.whatpricedidyouchose.com



10/10/07

Fairness and Schizophrenia in the Ultimatum

For the first time, a study look at schizophrenic patient behavior in the Ultimatum Game. Other studies of schizophrenic choice behavior revealed that they have difficulty in decisions under ambiguity and uncertainty (Lee et al, 2007), have a slight preference for immediate over long-term rewards, (Heerey et al, 2007), exhibit "strategic stiffness" (sticking to a strategy in sequential decision-making without integrating the outcomes of past choices; Kim et al, 2007), perform worse in the Iowa Gambling Task (Sevy et al. 2007)

A research team from Israel run a Ultimatum experiment with schizophrenic subjects (plus two control group, one depressive, one non-clinical). They had to split 20 New Israeli Shekels (NIS) (about 5 US$). Although schizophrenic patients' Responder behavior was not different from control group, their Proposer behavior was different: they tended to be less strategic.

With respect to offer level, results fall into three categories, fair (10 NIS), unfair (less than 10 NIS), and hyper-fair (more than 10 NIS). Schizophrenic patients tended to make less 'unfair' offer, and more 'hyper-fair' offer. Men were more generous than women.

According to the authors,

for schizophrenic Proposers, the possibility of dividing the money evenly was as reasonable as for healthy Proposers, whereas the option of being hyper-fair appears to be as reasonable as being unfair, in contrast to the pattern for healthy Proposers.
Agay et al. also studied the distribution of Proposers types according to their pattern of sequential decisions (how their second offer compared to their first). They identified three types:
  1. "‘Strong-strategic’ Proposers are those who adjusted their 2nd offer according to the response to their 1st offer, that is, raised their 2nd offer after their 1st one was rejected, or lowered their 2nd offer after their 1st offer was accepted.
  2. Weak-strategic’ Proposers are those who perseverated, that is, their 2nd offer was the same as their 1st offer.
  3. Finally, ‘non-strategic’ Proposers are those who unreasonably reduced their offer after a rejection, or raised their offer after an acceptance."
20% of the schizoprenic group are non-strategic, while none of the healthy subjects are non-strategic.


the highest proportion of non-strategic Proposers is in the schizophrenic group
The authors do not offer much explication for these results:

In the present framework, schizophrenic patients seemed to deal with the cognition-emotion conflict described in the fMRI study of Sanfey et al. (2003) [NOTE: the authors of the first neuroeconomics Ultimatum study] in a manner similar to that of healthy controls. However, it is important to note that the low proportion of rejections throughout the whole experiment makes this conclusion questionable.
Another study, however, shows that "siblings of patients with schizophrenia rejected unfair offers more often compared to control participants." (van ’t Wout et al, 2006, chap. 12), thus suggesting that Responder behavior might be, after all, different in patient with a genetic liability to schizophrenia. Yet another unresolved issue !

Related Posts

Reference
  • Agay, N., Kron, S., Carmel, Z., Mendlovic, S., & Levkovitz, Y. Ultimatum bargaining behavior of people affected by schizophrenia. Psychiatry Research, In Press, Corrected Proof.
  • Hamann, J., Cohen, R., Leucht, S., Busch, R., & Kissling, W. (2007). Shared decision making and long-term outcome in schizophrenia treatment. The Journal of clinical psychiatry, 68(7), 992-7.
  • Heerey, E. A., Robinson, B. M., McMahon, R. P., & Gold, J. M. (2007). Delay discounting in schizophrenia. Cognitive neuropsychiatry, 12(3), 213-21.
  • Hyojin Kim, Daeyeol Lee, Shin, Y., & Jeanyung Chey. (2007). Impaired strategic decision making in schizophrenia. Brain Res.
  • Lee, Y., Kim, Y., Seo, E., Park, O., Jeong, S., Kim, S. H., et al. (2007). Dissociation of emotional decision-making from cognitive decision-making in chronic schizophrenia. Psychiatry research, 152(2-3), 113-20.
  • Mascha van ’t Wout, Ahmet Akdeniz, Rene S. Kahn, Andre Aleman. Vulnerability for schizophrenia and goal-directed behavior: the Ultimatum Game in relatives of patients with schizophrenia. (manuscript), from The nature of emotional abnormalities in schizophrenia: Evidence from patients and high-risk individuals / Mascha van 't Wout, 2006, Proefschrift Universiteit Utrecht.
  • McKay, R., Langdon, R., & Coltheart, M. (2007). Jumping to delusions? Paranoia, probabilistic reasoning, and need for closure. Cognitive neuropsychiatry, 12(4), 362-76.
  • Sevy, S., Burdick, K. E., Visweswaraiah, H., Abdelmessih, S., Lukin, M., Yechiam, E., et al. (2007). Iowa Gambling Task in schizophrenia: A review and new data in patients with schizophrenia and co-occurring cannabis use disorders. Schizophrenia Research, 92(1-3), 74-84.



10/9/07

Recent neuroeconomics/neuroethics studies

First, in Cerebral Cortex, a lesion study suggesting that the Ventromedial Prefrontal Cortex (VMF) in involved both in decisions under uncertainty and those that are not; moreover, "Subjects with VMF damage were significantly more inconsistent in their preferences than controls, whereas those with frontal damage that spared the VMF performed normally". In:

The Role of Ventromedial Prefrontal Cortex in Decision Making: Judgment under Uncertainty or Judgment Per Se? Fellows, L. K., & Farah, M. J. (2007). Cerebral Cortex, 17(11), 2669-2674.

Second, a study on norm compliance: subjects are fairer in Dictator games when third-party punishment is possible; Spitzer et al. identified the brain areas involved in this norm-compliant behavior (the lateral orbitofrontal cortex--correlated with Machiavellian personality characteristics--and right dorsolateral prefrontal cortex). In:

The Neural Signature of Social Norm Compliance Manfred Spitzer, Urs Fischbacher, Bärbel Herrnberger, Georg Grön and Ernst Fehr
Volume 56, Issue 1, 4 October 2007, Pages 185-196

See a review in ScienceNOW, and a mini-review on norm violation with a neuro-computational twist:

To Detect and Correct: Norm Violations and Their Enforcement, P. Read Montague and Terry Lohrenz, Neuron, Volume 56, Issue 1, 4 October 2007, Pages 14-18.


Related to that, a suggested reading:

Sripada & Stich analyse the structure of norms in social context and how it relate to cognitive processing.



10/5/07

Review Paper on the Ultimatum, Chimps and related stuff

Thanks to Gene Expression, I found a good review paper in The Economist on the Ultimatum, Chimps and related stuff:

Evolution: Patience, fairness and the human condition. The Economist. Retrieved October 5, 2007, from



Ape-onomics: Chimps in the Ultimatum Game and Rationality in the Wild

I recently discussed the experimental study of the Ultimatum Game, and showed that it has been studied in economics, psychology, anthropology, psychophysics and genetics. Now primatologists/evolutionary anthropologists Keith Jensen, Josep Call and Michael Tomasello (the same team that showed that chimpanzees are vengeful but not spiteful see 2007a) had chimpanzees playing the Ultimatum, or more precisely, a mini-ultimatum, where proposers can make only two offers, for instance a fair vs. unfair one, or fair vs. an hyperfair, etc. Chimps had to split grapes. The possibilities were (in x/y pairs, x is the proposer, y, the responder)
  • 8/2 versus 5/5
  • 8/2 versus 2/8
  • 8/2 versus 8/2 (no choice)
  • 8/2 versus 10/0

The experimenters used the following device:



Fig. 1. (from Jensen et al, 2007b) Illustration of the testing environment. The proposer, who makes the first choice, sits to the responder's left. The apparatus, which has two sliding trays connected by a single rope, is outside of the cages. (A) By first sliding a Plexiglas panel (not shown) to access one rope end and by then pulling it, the proposer draws one of the baited trays halfway toward the two subjects. (B) The responder can then pull the attached rod, now within reach, to bring the proposed food tray to the cage mesh so that (C) both subjects can eat from their respective food dishes (clearly separated by a translucent divider)

Results indicate the chimps behave like Homo Economicus:
responders did not reject unfair offers when the proposer had the option of making a fair offer; they accepted almost all nonzero offers; and they reliably rejected only offers of zero (Jensen et al.)


As the authors conclude, "one of humans' closest living relatives behaves according to traditional economic models of self-interest, unlike humans, and t(...) does not share the human sensitivity to fairness."

So Homo Economicus would be a better picture of nature, red in tooth and claw? Yes and no. In another recent paper, Brosnan et al. studied the endowment effect in chimpanzees. The endowment effect is a bias that make us placing a higher value on objects we own relative to objects we do not. Well, chimps do that too. While they usually are indifferent between peanut butter and juice, once they "were given or ‘endowed’ with the peanut butter, almost 80 percent of them chose to keep the peanut butter, rather than exchange it for a juice bar" (from Vanderbilt news). They do not, however, have loss-aversion for non-food goods (rubber-bone dog chew toy and a knotted-rope dog toy). Another related study (Chen et al, 2006) also indicates that capuchin monkeys exhibit loss-aversion.

So there seems to be an incoherence here: chimps are both economically and non-economically rational. But this is only, as the positivists used to say, a pseudo-problem: they tend to comply with standard or 'selfish' economics in social context, but not in individual context. The difference between us and them is truly that we are, by nature, political animals. Our social rationality requires reciprocity, negotiation, exchange, communication, fairness, cooperation, morality, etc., not plain selfishness. Chimps do cooperate and exhibit a slight taste for fairness (see section 1 of this post), but not in human proportions.


Related post:

Reference:



10/4/07

Social Neuroeconomics: A Review by Fehr and Camerer

Ernst Fehr and Colin Camerer, two prominent experimental/behavioral/neuro-economists published a new paper in Trends in Cognitive Science on social neuroeconomics. Discussing many studies (this paper is a state-of-the-art review), they conclude that

social reward activates circuitry that overlaps, to a surprising degree, with circuitry that anticipates and represents other types of rewards. These studies reinforce the idea that social preferences for donating money, rejecting unfair offers, trusting others and punishing those who violate norms, are genuine expressions of preference

The authors illustrate this overlap with a the following picture: social and non-social reward elicit similar neural activation (see references for all cited studies at the end of this post):



Figure 1. (from Fehr and Camerer, forthcoming). Parallelism of rewards for oneself and for others: Brain areas commonly activated in (a) nine studies of social reward (..), and (b) a sample of six studies of learning and anticipated own monetary reward (..).

So basically, we have enough evidence to justify a model of rational agents as entertaining social preferences. As I argue in a forthcoming paper (let me know if you want to have a copy), these findings will have normative impact, especially for game-theoretic situations: if a rational agent anticipate other agents's strategies, she better anticipate that they have social preferences. For instance, one might argue that in the Ultimatum Game, it is rational to make a fair offer.


Related posts:

Reference:
  • Fehr, E. and Camerer, C.F., Social neuroeconomics: the neural circuitry of social preferences, Trends Cogn. Sci. (2007), doi:10.1016/j.tics.2007.09.002


Studies of social reward cited in Fig. 1:

  • [26] J. Rilling et al., A neural basis for social cooperation, Neuron 35 (2002), pp. 395–405.
  • [27] J.K. Rilling et al., Opposing BOLD responses to reciprocated and unreciprocated altruism in putative reward pathways, Neuroreport 15 (2004), pp. 2539–2543.
  • [28] D.J. de Quervain et al., The neural basis of altruistic punishment, Science 305 (2004), pp. 1254–1258.
  • [29] T. Singer et al., Empathic neural responses are modulated by the perceived fairness of others, Nature 439 (2006), pp. 466–469
  • [30] J. Moll et al., Human fronto-mesolimbic networks guide decisions about charitable donation, Proc. Natl. Acad. Sci. U. S. A. 103 (2006), pp. 15623–15628.
  • [31] W.T. Harbaugh et al., Neural responses to taxation and voluntary giving reveal motives for charitable donations, Science 316 (2007), pp. 1622–1625.
  • [32] Tabibnia, G. et al. The sunny side of fairness – preference for fairness activates reward circuitry. Psychol. Sci. (in press).
  • [55] T. Singer et al., Brain responses to the acquired moral status of faces, Neuron 41 (2004), pp. 653–662.
  • [56] B. King-Casas et al., Getting to know you: reputation and trust in a two-person economic exchange, Science 308 (2005), pp. 78–83.

Studies of learning and anticipated own monetary reward cited in Fig. 1:

  • [33] S.M. Tom et al., The neural basis of loss aversion in decision-making under risk, Science 315 (2007), pp. 515–518.
  • [61] M. Bhatt and C.F. Camerer, Self-referential thinking and equilibrium as states of mind in games: fMRI evidence, Games Econ. Behav. 52 (2005), pp. 424–459.
  • [73] P.K. Preuschoff et al., Neural differentiation of expected reward and risk in human subcortical structures, Neuron 51 (2006), pp. 381–390.
  • [74] J. O’Doherty et al., Dissociable roles of ventral and dorsal striatum in instrumental conditioning, Science 304 (2004), pp. 452–454.
  • [75] E.M. Tricomi et al., Modulation of caudate activity by action contingency, Neuron 41 (2004), pp. 281–292.



10/2/07

The Ultimatum Game: Economics, Psychology, Anthroplogy, Psychophysics, Neuroscience and now, Genetics

The Ultimatum Game (Güth et al., 1982) is a one-shot bargaining game. A first player (the Proposer) offers a fraction of a money amount; the second player (the Responder) may either accept or reject the proposal. If the Responder accepts, she keeps the offered amount while the Proposer keeps the difference. If she rejects it, both players get nothing. According to Game Theory, the subgame perfect equilibrium (a variety of Nash equilibrium for dynamic game) is the following set of strategies:

  • The Proposer should offer the smallest possible amount (in order to keep as much money as possible)
  • The Responder should accept any amount (because a small amount should be better than nothing)

The UG has been experimentally tested in a variety of contexts, where different parameters of the game where modified: age, sex, the amount of money, the degree of anonymity, the length of the game, etc. (Camerer & Thaler, 1995; Henrich et al., 2004; Oosterbeek et al., 2004; Samuelson, 2005). The results show a robust tendency: the game-theoretic strategy is almost never followed. People tend to anticipate and make “fair” offers. While Proposers offer about 50% of the "pie", Responders tend to accept these offers while rejecting most of the “unfair” offers (less than 20% of M). Some will even reject “too fair” offers (Bahry & Wilson, 2006)

Henrich et al (2005) studied Ultimatum behavior in 15 different small-scale societies. They found cultural variation, but these variations exhibit a constant pattern of reciprocity: differences are greater between groups than between individuals in the same group. Subjects are closer to equilibrium strategies in 4 situations: when playing against a computer, (Blount, 1995; Rilling et al., 2004; Sanfey et al., 2003; van 't Wout et al., 2006) when players are groups (Robert & Carnevale, 1997), autists (Hill & Sally, 2002) or people trained in decision and game theory, like economists and economics students (Carter & Irons, 1991; Frank et al., 1993; Kahneman et al., 1986).

Neuroeconomics shows that Ultimatum decision-making relies mainly on three areas: the anterior insula (AI), often associated with negative emotional states like disgust or anger, the dorsolateral prefrontal cortex (DLPFC), associated with cognitive control, attention, goals maintenance, and the anterior cingulate cortex (ACC), associated with cognitive conflict, motivation, error detection and emotional modulation (Sanfey et al., 2003). All three areas denote a stronger activity when the Responder faces an unfair offer. When offers are unfair, the brain faces a dilemma: punish that unfair player, or get a little money (which is better than nothing) ? The conflict involves firstly AI. This area is more active when unfair offers are proposed, and even more when the Proposer (compared to when it is a computer.) It is also correlated with the degree of unfairness (Sanfey et al., 2003: 1756) and with the decision to reject unfair offers. Skin conductance experiments show that unfair offers and their rejection are associated with greater skin conductance (van 't Wout et al., 2006). DLPFC activity remains relatively constant across unfair offers. When AI activation is greater than DLPFC, unfair offers tend to be rejected, while they tend to be accepted when DLPFC activation is greater than AI.

A new study by Wallace, Cesarini, Lichtenstein & Johannesson now investigate the influence of genes on ultimatum behavior. The compared monozigotic (same set of genes) and dizigotic ("non-identical") twins. Their statistical analysis identified which of these different factors explains the variation in behavior: genetic effects, common environmental effects, and nonshared environmental effects. They found that genetics account for 42% of the variation in responder behavior: i.e., identical twins are more likely to behave similarly in their reaction to Ultimatum proposition. Thus, sensibility to fairness might have a genetic component, an idea that proponent of the Strong Reciprocity Hypothesis put forth but did not backed with genetic studies. Yet it does not mean that that fairness preferences followed the evolutionary path advocated by SRH proponents:

Although our results are consistent with an evolutionary origin for fairness preferences, it is important to remember that heritability measures the genetically determined variation around some average behavior. Hence, it does not provide us with any direct evidence with regard to the evolutionary dynamics that brought it about (Wallace et al., p. 15633)
Of course the big question remains : how is it that genes influence the development of neural structure that control fairness preference and reciprocal behavior? A question for evo-devo-neuro-psycho-economics !

Related posts:
Links:
  • Wallace, B., Cesarini, D., Lichtenstein, P., & Johannesson, M. (2007). Heritability of ultimatum game responder behavior. Proceedings of the National Academy of Sciences, 0706642104. [Open Access Article]

  • Genes influence people's choices in economics game (MIT news)
    Except:
    "Compared to common environmental influences such as upbringing, genetic influences appear to be a much more important source of variation in how people play the game," Cesarini said.
    "This raises the intriguing possibility that many of our preferences and personal economic choices are subject to substantial genetic influence," said lead author Bjorn Wallace of the Stockholm School of Economics, who conceived of the study."


    References:

    • Bahry, D. L., & Wilson, R. K. (2006). Confusion or Fairness in the Field? Rejections in the Ultimatum Game under the Strategy Method. Journal of Economic Behavior & Organization, 60(1), 37-54.
    • Blount, S. (1995). When Social Outcomes Aren't Fair: The Effect of Causal Attributions on Preferences. Organizational Behavior and Human Decision Processes, 63(2), 131-144.
    • Camerer, C., & Thaler, R. H. (1995). Anomalies: Ultimatums, Dictators and Manners. The Journal of Economic Perspectives, 9(2), 209-219.
    • Carter, J. R., & Irons, M. D. (1991). Are Economists Different, and If So, Why? The Journal of Economic Perspectives, 5(2), 171-177.
    • Frank, R. H., Gilovich, T., & Regan, D. T. (1993). Does Studying Economics Inhibit Cooperation? The Journal of Economic Perspectives, 7(2), 159-171.
    • Güth, W., Schmittberger, R., & Schwarze, B. (1982). An Experimental Analysis of Ultimatum Bargaining. Journal of Economic Behavior and Organization, 3(4), 367-388.
    • Henrich, J., Boyd, R., Bowles, S., Camerer, C., E., F., & Gintis, H. (2004). Foundations of Human Sociality: Economic Experiments and Ethnographic Evidence from Fifteen Small-Scale Societies: Oxford University Press.
    • Henrich, J., Boyd, R., Bowles, S., Camerer, C., Fehr, E., Gintis, H., McElreath, R., Alvard, M., Barr, A., Ensminger, J., Henrich, N. S., Hill, K., Gil-White, F., Gurven, M., Marlowe, F. W., Patton, J. Q., & Tracer, D. (2005). "Economic Man" In Cross-Cultural Perspective: Behavioral Experiments in 15 Small-Scale Societies. Behavioral and Brain Sciences, 28(6), 795-815; discussion 815-755.
    • Hill, E., & Sally, D. (2002). Dilemmas and Bargains: Theory of Mind, Cooperation and Fairness. working paper, University College, London.
    • Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1986). Fairness and the Assumptions of Economics. The Journal of Business, 59(4), S285-S300.
    • Oosterbeek, H., S., R., & van de Kuilen, G. (2004). Differences in Ultimatum Game Experiments: Evidence from a Meta-Analysis. Experimental Economics 7, 171-188.
    • Rilling, J. K., Sanfey, A. G., Aronson, J. A., Nystrom, L. E., & Cohen, J. D. (2004). The Neural Correlates of Theory of Mind within Interpersonal Interactions. Neuroimage, 22(4), 1694-1703.
    • Robert, C., & Carnevale, P. J. (1997). Group Choice in Ultimatum Bargaining. Organizational Behavior and Human Decision Processes, 72(2), 256-279.
    • Samuelson, L. (2005). Economic Theory and Experimental Economics. Journal of Economic Literature, 43, 65-107.
    • Sanfey, A. G., Rilling, J. K., Aronson, J. A., Nystrom, L. E., & Cohen, J. D. (2003). The Neural Basis of Economic Decision-Making in the Ultimatum Game. Science, 300(5626), 1755-1758.
    • van 't Wout, M., Kahn, R. S., Sanfey, A. G., & Aleman, A. (2006). Affective State and Decision-Making in the Ultimatum Game. Exp Brain Res, 169(4), 564-568.
    • Wallace, B., Cesarini, D., Lichtenstein, P., & Johannesson, M. (2007). Heritability of ultimatum game responder behavior. Proceedings of the National Academy of Sciences, 0706642104.



8/18/07

The logic of investment and the logic of obligation in Maasai culture

In the last post, I reported a study that shows how a single sentence can promote fairness in the Dictaror game. Now another study shows how a single sentence reduces trust and fairness in the Trust Game. In this game, DM1s (Decision-Makers one) decide how much, if any, of a certain amount of money they would like to transfer to DM2s. The transferred money is tripled, and DM2s decide how much, if any, they give to DM1s. People tend to transfer and reciprocate a considerable amount of money, although orthodox game theory predicts that they would not.

Lee Cronk had Kenyan Maa-speaking individuals play the trust game. Half of them where not framed, while the other ones were informed that 'This is an osotua game." Osotua (literally, "umbilical cord") , in Maasai, refers to certain gift-giving relationships:


Osotua relationships are started in many ways, but they usually begin with a request for a gift or favor. Such requests arise from genuine need and are limited to the amount actually needed. Gifts given in response to such requests are given freely (pesho) and from the heart (ltau) but, like the requests, are limited to what is actually needed. Because the economy is based on livestock, many osotua gifts take that form, but virtually any good or service may serve as an osotua gift. Once osotua is established, it is pervasive in the sense that one cannot get away from it. Osotua is also eternal. Once established, it cannot be destroyed, even if individuals who established the relationship die.

So what happened when the trust game was presented as Osotua? Players transferred less money than in the regular, non-framed situation. Also, there is a correlation between the amount that DM1s were given and how much they expected to receive in the unframed, but not in the framed condition. The framing, according to Cronk,

shifts game play away from the logic of investment and towards the mutual obligation of isotuatin to respond to one another's genuine needs, but only with what is genuinely needed.
Hence a simple cue can trigger a complete shift in perspective and alter player's behavior.








8/9/07

“Note that he relies on you”; how a single sentence enhances altruism in a Dictator game

In a recent study, experimental economist Pablo Branas-Garza showed that a single sentence is enough to promote fairness. He conducted two experiments, one in a classroom, the other being a regular economic experiments, where subjects had to play a Dictator Game. In every experiments, there was a baseline condition (subjects where presented with a description of the game), and a framing condition: at the end of the text, a sentence reads “Note that your opponent relies on you”. Results: adding that sentence increased donations. As fig. 1 shows, the framing boosts altruism and reduces selfishness: low offers are much rarer.




fig. 1, from Branas-Garza, 2007.



What is surprising is not that subjects are sensible to certain moral-social cues, but that such a simple cue (7 words) is sufficient. The more we know about each others, the less selfish we are.




8/5/07

Greed—for lack of a better word—is not necessarily good: the other Adam Smith and the economics of altruism

In one of the most quoted passage of the Wealth of Nations, Adam Smith argue that economic self-interest leads to collective optima:

It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of their fellow-citizens.
Everybody will remember the famous Gordon Gekko's speech in Oliver Stone's Wall Street (1987):




The point is, ladies and gentlemen, that greed—for lack of a better word—is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms—greed for life, for money, for love, knowledge—has marked the upward surge of mankind.

Things may not be that simple. While the standard Homo Economicus model represents agents as exclusively motivated by their material self-interest, economic theories of fairness put forth the picture of Homo Reciprocans, an agent whose utility function incorporates social parameters (Bowles & Gintis, 2002; see Fehr and Schmidt, 2003, for a review). Economic theories of fairness fall into two categories: outcome-based models and intention-based models. The former explains fairness as the product of players’ aversion to inequity (Bolton and Ockenfels, 2000; Fehr and Schmidt, 1999; see also this post). Players are sensible to the distributive consequences of strategic interactions and prefer resources allocations that reduce inequity: they negatively value a discrepancy between their own payoff and an equitable payoff (whether it’s the mean payoff or another player’s payoff). The latter explains fairness as the product of players’ reciprocation of perceived kindness or unkindness (Rabin, 1993 ; Dufwenberg & Kirchsteiger, 2004).). More than the outcome of an interaction, fairness is motivated by the attributed intention. For instance, in a ultimatum where the proposer’s behavior is restricted to two options (50/50 and 80/20 split), the second option is the most rejected; when the proposer’s options are 20/80 and 80/20, however, the first option is rejected less often (Falk, Fehr & Fischbacher 2003). Decision-makers value differently the same option whether it is perceived as an intention to be fair (valued positively) or not (negatively). Since both parameters appear to be important, many models integrate both intentions and outcomes (Fehr & Schmidt, 2003; Falk & Fischbacher, 2006).
A common feature of these models is the preservation of the optimality assumption: although they all suggest that standard utility function should incorporate different parameters, they do not reject the idea that agents are internally rational: they maximize a non-classical utility function.

Hence it is not surprising that contemporary research is more interested by the "first" Adam Smith, who wrote in the Theory of Moral Sentiments:
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive sorrow from the sorrow of others, is a matter of fact too obvious to require any instances to prove it; for this sentiment, like all the other original passions of human nature, is by no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility. The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.
In "Adam Smith, Behavioral Economist", Ashraf et al. (2005, The Journal of Economic Perspectives, 19, 131-145) discusses the relevance of Smith for experimental economics. In "The Two Faces of Adam Smith" (Southern Economic Journal, 65, 1-19), another Smith (Vernon) analyses the dual nature of Smith's (Adam) writing.

Finally, (found thanks to Mind Hacks) there is an excellent paper in the last Scientific American on the economics of fairness and other moral sentiments:

Is Greed Good?
Economists are finding that social concerns often trump selfishness in financial decision making, a view that helps to explain why tens of millions of people send money to strangers they find on the Internet
By Christoph Uhlhaas
There will be a conference a conference to commemorate the 250th anniversary of The Theory of Moral Sentiments in 2009 in Oxford (see CFP on PhilEcon website).

References
  • Ashraf, N., Camerer, C. F., & Loewenstein, G. (2005). Adam Smith, Behavioral Economist. The Journal of Economic Perspectives, 19, 131-145.
  • Bolton, G. E., & Ockenfels, A. (2000). ERC: A Theory of Equity, Reciprocity, and Competition. The American Economic Review, 90(1), 166-193.
  • Bowles, S., & Gintis, H. (2002). Behavioural science: Homo reciprocans. Nature, 415(6868), 125-128.
  • Bowles, S., & Gintis, H. (2004). The evolution of strong reciprocity: cooperation in heterogeneous populations. Theoretical Population Biology, 65(1), 17-28.
  • Dufwenberg, M., & Kirchsteiger, G. (2004). A theory of sequential reciprocity. Games and Economic Behavior, 47(2), 268-298.
  • Falk, A., Fehr, E., & Fischbacher, U. (2003). On the Nature of Fair Behavior. Economic Inquiry, 41(1), 20-26.
  • Falk, A., & Fischbacher, U. (2006). A theory of reciprocity. Games and Economic Behavior, 54(2), 293-315.
  • Fehr, E., & Fischbacher, U. (2002). Why social preferences matter: The impact of non-selfish motives on competition, cooperation and incentives. Economic Journal, 112, C1-C33.
  • Fehr, E., Fischbacher, U., & Gachter, S. (2002). Strong reciprocity, human cooperation, and the enforcement of social norms. Human Nature, 13(1), 1-25.
  • Fehr, E., & Rockenbach, B. (2004). Human altruism: economic, neural, and evolutionary perspectives. Curr Opin Neurobiol, 14(6), 784-790.
  • Fehr, E., & Schmidt, K. (2003). Theories of Fairness and Reciprocity – Evidence and Economic Applications. In M. Dewatripont, L. Hansen & S. Turnovsky (Eds.), Advances in Economics and Econometrics - 8th World Congress (pp. 208-257).
  • Fehr, E., & Schmidt, K. M. (1999). A Theory Of Fairness, Competition, and Cooperation. Quarterly Journal of Economics, 114(3), 817-868.
  • Rabin, M. (1993). Incorporating Fairness into Game Theory and Economics. The American Economic Review, 83(5), 1281-1302.
  • Smith, V. L. (1998). The Two Faces of Adam Smith. Southern Economic Journal, 65, 1-19.




7/31/07

Understanding two models of fairness: outcome-based inequity aversion vs. intention-based reciprocity

Why are people fair? Theoretical economics provides two generic models that fits the data. According to the first, inequity aversion, people are inequity-averse: they don't like a situation where one agent is disadvantaged over another. This model is based on consequences. The other model is based on intentions: although the consequences of an action are important, what matters here is the intention that motivates the action. I won't discuss which approach is better (it is an ongoing debates in economics), but I just wanted to share with a extremely clear presentations of the two parties, found in van Winden, F. (2007). Affect and Fairness in Economics. Social Justice Research, 20(1), 35-52., on pages 38-39:

In inequity aversion models (Bolton and Ockenfels, 2000; Fehr and Schmidt, 1999), which focus on the outcomes or payoffs of social interactions, any deviation between an individual's payoff and the equitable payoff (e.g., the mean payoff or the opponent's payoff) is supposed to be negatively valued by that individual. More formally, the crucial difference between an outcome-based inequity aversion model and the homo economicus model is that, in addition to the argument representing the individual's own payoff, a new argument is inserted in the utility function showing the individual's inequity aversion (social preferences), as in the social utility model (see, e.g., Handgraaf et al., 2003; Loewenstein et al., 1989; Messick and Sentis, 1985). The individual is then assumed to maximize this adapted utility function.

In intention-based reciprocity models it is not the outcomes of the interaction as such that matter, but the intentions of the players (Rabin, 1993; see also Falk and Fischbacher, 2006). The idea is that people want to reciprocate perceived (un)kindness with (un)kindness, because this increases their utility. Obviously, beliefs play a crucial role here. More formally, in this case, in addition to an individual's own payoff a new argument is inserted in the utility function incorporating the assumed reciprocity motive. As a consequence, if someone is perceived as being kind it increases the individual's utility to reciprocate with being kind to this other person. Similarly, if the other is believed to be unkind, the individual is better off by being unkind as well, because this adds to her or his utility. Again, this adapted utility function is assumed to be maximized by the individual.





7/25/07

More than Trust: Oxytocin Increases Generosity

It was known since a couple of years that oxytocin (OT) increases trust (Kosfeld, et al., 2005): in the Trust game, players transfered more money once they inhale OT. Now recent research also suggest that it increases generosity. In a paper presented at the ESA (Economic Science Association, an empirically-oriented economics society) meeting, Stanton, Ahmadi, and Zak, (from the Center for Neuroeconomics studies) showed that Ultimatum players in the OT group offered more money (21% more) than in the placebo group--$4.86 (OT) vs. $4.03 (placebo).
They defined generosity as "an offer that exceeds the average of the MinAccept" (p.9), i.e., the minimum acceptable offer by the "responder" in the Ultimatum. In this case, offers over $2.97 were categorized as generous. Again, OT subjects displayed more generosity: the OT group offered $1.86 (80% more) over the minimum acceptable offer, while placebo subjects offered $1.03.


Interestingly, OT subjects did not turn into pure altruist: they make offers (mean $3.77) in the Dictator game similar to placebo subjects (mean $3.58, no significant difference). Thus the motive is neither direct nor indirect reciprocity (Ultimatum were blinded one-shot so there is no tit-for-tat or reputation involved here). It is not pure altruism, according to Stanton et al., (or "strong reciprocity"--see this post on the distinction between types of reciprocity) because the threat of the MinAccept compels players to make fair offers. They conclude that generosity in enhanced because OT affects empathy. Subjects simulate the perspective of the other player in the Ultimatum, but not in the Dictator. Hence, generosity "runs" on empathy: in empathizing context (Ultimatum) subjects are more generous, but in non-empathizing context they don't--in the dictator, it is not necessary to know the opponent's strategy in order to compute the optimal move, since her actions has no impact on the proposer's behavior. It would be interesting to see if there is a different OT effect in basic vs. reenactive empathy (sensorimotor vs. deliberative empathy; see this post).

Interested readers should also read Neural Substrates of Decision-Making in Economic Games, by one of the author of the study (Stanton): in her PhD Thesis, she desribes many neurpeconomic experiences.

[Anecdote: I once asked people of the ESA why they call their society like that: all presented papers were experimental, so I thought that the name should reflect the empirical nature of the conference. They replied judiscioulsy : "Because we think that it's how economics should be done"...]

References



7/11/07

Decision-Making: A Neuroeconomic Perspective

I put a new paper on my homepage :

Decision-Making: A Neuroeconomic Perspective

Here is the abstract:

This article introduces and discusses from a philosophical point of view the nascent field of neuroeconomics, which is the study of neural mechanisms involved in decision-making and their economic significance. Following a survey of the ways in which decision-making is usually construed in philosophy, economics and psychology, I review many important findings in neuroeconomics to show that they suggest a revised picture of decision-making and ourselves as choosing agents. Finally, I outline a neuroeconomic account of irrationality.

Hardy-Vallée, B. (forthcoming). Decision-making: a neuroeconomic perspective. Philosophy Compass. [PDF]

This paper is the first in my philosophical exploration of neuroeconomics, and I would gladly welcome your comments and suggestions for subsequent research. Email me at benoithv@gmail.com.



7/9/07

Testosterone and ultimatum behavior

In a recent research paper, Terry Burnham investigated whether testosterone modulates behavior in the ultimatum game. Proposers and responders had to split $40. Proposers could either offer $25 or $5 out of 40, i.e, a fair or an unfair offer. It turns out that men with a higher level of testosterone are more prone to reject low offers than low-testosterone man:



Given that testosterone is associated with competition and dominance, Burnham interprets these results as indicating that low offers are construed as a challenge, and that high-testosterone men reply more aggressively.

Another--but closely related--interpretation would suggest not that high-testosterone men see low offers as a challenge (it not clear, by the way, how that could be a challenge), but rather that they are more irritated by a lack of fairness. They are more prone to punish those who do not behave fairly toward them by rejecting their offer.

see also a report in The Economist.




see also a report in The Economist.