Wednesday, October 24, 2007

Biology and Bargaining

Business Week reports on some interesting facts related to bargaining tendencies in the “ultimatum game.” In the ultimatum game, two players are bargaining over a certain amount of money. The first player makes an offer of a split, and the second can either accept or reject. If the offer is accepted, the money is split per the offer; if it’s rejected, neither player gets anything.

The article first mentions some research from MIT that suggests there may be a biological basis to bargaining tendencies. Researchers found that identical twins display more similarities in their bargaining behavior than do non-identical twins. The article also mentions research from the Max Planck Institute for Evolutionary Anthropology in which chimpanzees played the game using raisins. Unlike humans, who have a tendency to make generous offers when they are the first player and to reject non-generous offers when they are the second players, chimpanzees exhibit the type of rational, profit-maximizing behavior economists would expect. Receiving chimps were content as long as they received one raisin, and offering chimps tended to make very low sharing offers. Interestingly, the article describes the offering chimps’ behavior with the phrase “never made a fair offer.” What’s unfair about maximizing your own outcome?

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