Bargaining and Psychology
Lecture One:
The Structure & Evolution of Preferences
Keith Chen, Nov 3rd 2004
Plan of Action Overall:
•
Broadly: Whirlwind tour of Biology,
Psychology and Experimental Economics.
•
Provide a toolbox of insights from these
disciplines:
–
a conceptual framework through which to
understand the interpersonal / cultural aspects of
negotiations.
Plan of Action Today:
•
Basic departure from the self-interested
model: Fairness, Altruism & Spite.
•
How do we begin to conceptualize and
measure notions of Fairness / Blame /
Blameworthiness? Economic Experiments.
•
Framing, Cultural & SES Effects
•
Stability and Strategies: my work on the
evolution of Altruism and Fairness
Preferences.
Economic Experiments
•
Rules of the Road for all Economics
Experiments:
– NO DECEPTION (on my part)!
– Real stakes!!
• Ask that you play within the rules:
– Do your best and think hard about the
game.
Ultimatum Game:

The rules of the game:
1. You will be randomly paired with someone else in the class; this
pairing will remain completely anonymous.
2. One of you will be chosen (by coin flip) to be either the Proposer
or the Responder in this experiment, and one pair will be
randomly chosen to play for $100.
3. The Proposer gets to make an offer to split $100 in some
proportion with the Responder. So the proposer can offer $x to
the responder, proposing to keep $100-x for themselves.
4. The Responder must decide what is the lowest amount offered by
the proposer that he / she will accept; i.e. “I will accept any offer
which is greater than or equal to $y.”
5. If the responder accepts the offer made by the proposer, they split
the sum according to the proposal. If the responder rejects, both
parties lose their shares.
Ultimatum Game:
 Cross-Cultural Variation that tracks social
structure: Henrich et al.
 Variation in predictions for first and second
answer:
 Different levels of rationality
 The beauty-contest game.
 When self-interest becomes less stable (weaker
consequences,) fairness has more room to
emerge?
Fairness in the Market
• Constraints are based more on notion of what is
normal rather than “objective” justice; KaKnTh
• Reference Transactions
– History of previous transactions (Q2)
– Market (nominal) Prices (Q4)
– Posted (list, nominal) Prices (Q5)
• Occasions for Pricing Decisions / Reference Profits
– Protecting Profits (Q9)
– Profit Increases (Q11)
– Increases in Market Power
• Punishment
Economic Fairness:
Surveys & Framing Effects
Reference Points, Regret & Framing.
Effect of Knowing Alternate
Outcomes
• Larrick & Bowles: References Affect Bargaining
• People are risk-averse when they won’t know the
outcome of an alternate gamble
• People are more risk-neutral when they will be told
the alternate gamble outcome
• Coin flip +$0/+$200 vs. $90 guaranteed
• People are willing to pay a “regret premium” to avoid
discovering the outcome
• Negotiators who won’t get feedback on a foregone
alternative are more likely to reach agreement
Surveys Say:
• There is a temporal pattern to regret (Bowles)
– In the short term, people regret actions
taken more than inaction
– In the long term, people regret inaction
more than action
• Train-Track surveys, Glaeser-Sacerdote work
on sentencing (VHS +56% women, -53%
black)
• Takeaway: reference points strongly
effects their perceptions of Fairness.
Culture, Blame & Attribution
•
South vs. North
•
East vs. West (collectivist vs. individualist)
•
Rich vs. Poor (the illusion of control.)
•
Economic Position and in/out-group
–
•
Jews, Chinese & Copts
Ultimatum Games in Other Cultures.
The Theory of Reciprocal
Altruism / Cooperation
•
Why study reciprocal play in animals?
1. Examining Animals gives us:
•
Perspective on cross-cultural validity of
game-theory.
•
Way of thinking about how fairness is either
cultural or biological, socially constructed or
evolutionary.
Subjects:
Cotton-top Tamarins: a cooperative breeder
New
World
monkeys
Old
World
monkeys
Apes
Experimental Setup:
barrier
receiver
actor
tool
food
tray
Training & Solo Conditions
Condition 1
Condition 2
Condition 3 & 4
Condition 5
no barrier
w. barrier
Intentionality?
A Simple Reciprocation Game
S2
S1
First Game
S2
Experiment 1 tests for:
(i) Contingent cooperation
(ii) Recognition of reputation
Setup: trained vs untrained actors
S1
SH: 100% Altruist
JG: 100% Defector
0.6
Frequency of Pulls
0.5
0.4
Pulls for Alt.
0.3
Pulls for Def.
0.2
0.1
0
1
2
3
Session
4
Frequency of Pulls
Pulling for the Altruist by Trial
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Pulls for Alt.
Odd Trials
Even Trials
1
3
5
7
9
11
13
Trial #
15
17
19
21
23
Reciprocation Game 2a:
S2
Untrained Actors
S1
S2
Experiment 2a tests for:
Reciprocal strategies between
untrained actors
S1
Description of the Model
Predictions of a linear fit.
Pull then imitate.
Pull if last 2 trials were pull.
Pull if last 3 trials were pull.
Play what opponent has done most.
Play what opponent did most over last 3 moves.
Play what opponent did most over last 5 moves.
Play the historic dist. of your opponent's play.
history only goes back 3 moves.
history only goes back 5 moves.
Play a Beta=1/2 weighted historic distribution.
Optimally fit Beta to the data.
Play a cut off rule at 1/2.
Play a cut off rule at 1/2 using the fit Beta.
Play what has the highest historic payoff.
Mix in proportion to historic payoffs.
See discussion section for governing dynamic.
An optimally fit Beta stimulus-response model.
Chi Sqr. Er. Rate Post. Prob. Param. Adj. Cond.Prob.
37.66
10.82
16.56
14.16
11.98
22.37
19.84
8.59
11.48
11.15
15.11
14.88
10.57
26.08
2.63
3
6.41
6.55
0%
41%
34%
33%
39%
39%
38%
49%
37%
36%
37%
36%
43%
22%
44%
41%
29%
27%
2.0295E-204
1.0452E-205
9.1842E-200
1.0454E-200
4.3737E-203
1.9999E-202
3.4967E-201
5.6628E-206
1.1650E-202
4.5700E-203
1.6596E-203
2.1978E-203
2.9351E-207
5.9163E-204
1.5320E-207
1.2272E-206
4.0656E-201
4.2224E-201
3
2
2
2
2
2
2
2
2
2
2
3
2
3
2
2
2
3
0.000
0.000
83.168
9.467
0.040
0.181
3.166
0.000
0.105
0.041
0.015
0.001
0.000
0.000
0.000
0.000
3.682
0.134
Reciprocation Game 2b:
One fixed session
3 sessions of:
1 session:
1 final
session
Unconditioned Play with Altered 4th Session
Payoffs
Frequency of Pulls
0.5
Altered payoff session,
subjects always pulled
0.4
0.3
0.2
0.1
0
1
2
3
Session
4
5
Reciprocation Game 3:
S2
Selfish Altruism
S1
S2
Experiment 3 tests for:
Recognition of byproduct altruism,
or “selfish” altruism
S1
Frequency of Pulls
Pulling with a "Selfish" Partner
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Selfish
Partner w. Selfish
New Experiment:
3 Year Old Kids
Subjects:
Cotton-top Tamarins: a cooperative breeder
New
World
monkeys
Old
World
monkeys
Apes
Experimental Setup:
barrier
receiver
actor
tool
food
tray
Training & Solo Conditions
Condition 1
Condition 2
Condition 3 & 4
Condition 5
no barrier
w. barrier
Intentionality?
A Simple Reciprocation Game
S2
S1
First Game
S2
Experiment 1 tests for:
(i) Contingent cooperation
(ii) Recognition of reputation
Setup: trained vs untrained actors
S1
SH: 100% Altruist
JG: 100% Defector
0.6
Frequency of Pulls
0.5
0.4
Pulls for Alt.
0.3
Pulls for Def.
0.2
0.1
0
1
2
3
Session
4
Frequency of Pulls
Pulling for the Altruist by Trial
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Pulls for Alt.
Odd Trials
Even Trials
1
3
5
7
9
11
13
Trial #
15
17
19
21
23
Reciprocation Game 2:
S2
Untrained Actors
S1
S2
Experiment 2 tests for:
Reciprocal strategies between
untrained actors
S1
Description of the Model
Predictions of a linear fit.
Pull then imitate.
Pull if last 2 trials were pull.
Pull if last 3 trials were pull.
Play what opponent has done most.
Play what opponent did most over last 3 moves.
Play what opponent did most over last 5 moves.
Play the historic dist. of your opponent's play.
history only goes back 3 moves.
history only goes back 5 moves.
Play a Beta=1/2 weighted historic distribution.
Optimally fit Beta to the data.
Play a cut off rule at 1/2.
Play a cut off rule at 1/2 using the fit Beta.
Play what has the highest historic payoff.
Mix in proportion to historic payoffs.
See discussion section for governing dynamic.
An optimally fit Beta stimulus-response model.
Chi Sqr. Er. Rate Post. Prob. Param. Adj. Cond.Prob.
37.66
10.82
16.56
14.16
11.98
22.37
19.84
8.59
11.48
11.15
15.11
14.88
10.57
26.08
2.63
3
6.41
6.55
0%
41%
34%
33%
39%
39%
38%
49%
37%
36%
37%
36%
43%
22%
44%
41%
29%
27%
2.0295E-204
1.0452E-205
9.1842E-200
1.0454E-200
4.3737E-203
1.9999E-202
3.4967E-201
5.6628E-206
1.1650E-202
4.5700E-203
1.6596E-203
2.1978E-203
2.9351E-207
5.9163E-204
1.5320E-207
1.2272E-206
4.0656E-201
4.2224E-201
3
2
2
2
2
2
2
2
2
2
2
3
2
3
2
2
2
3
0.000
0.000
83.168
9.467
0.040
0.181
3.166
0.000
0.105
0.041
0.015
0.001
0.000
0.000
0.000
0.000
3.682
0.134
Reciprocation Game 3:
S2
Selfish Altruism
S1
S2
Experiment 3 tests for:
Recognition of byproduct altruism,
or “selfish” altruism
S1
Frequency of Pulls
Pulling with a "Selfish" Partner
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Selfish
Partner w. Selfish
Reciprocation Game 4:
S2
Play with Humans
S1
S2
human
Experiment 4 tests for:
Recognition of unintentional
altruism, when a human pulls.
S1
Pulling for the Human Compared to Pulling for
the Defector
Frequency of Pulls
0.6
0.5
0.4
Pulls for Alt.
0.3
Pulls for Def.
Pulls with human
0.2
0.1
0
1
2
3
Session
4
Pulling for the Human Compared to Pulling for
the Defector
Frequency of Pulls
0.25
0.2
0.15
Pulls for Def.
Pulls with human
0.1
0.05
0
1
2
3
Session
4
Tamarin Conclusions:
Biology:
Economics:
1. Strong evidence of
Reciprocal Altruism.
1. Sophisticated play not
confined to humans.
2. Evidence Tamarins
are quite sophisticated
about reciprocal play.
2. Informs parsimony,
suggests wide scope
for theory.
3. Preferences such as
Altruism seem
universal and shaped
by evolved cognitive
structures.
Capuchin Experiments:
• More complex division tasks: Ultimatum,
dictator and public goods games
• The use of fiat money:
– Recognition of Common Value
– Basic tests of Rational Preferences
• Risk preferences (and biases)
Capuchin Money and Trading
• Trained Capuchin monkeys to know that
“tokens” can be traded for different foods, at
different prices with different RAs.
• New: The Payoffs can be risky.
Capuchin Money and Trading
• Three Conditions:
– Searched for foods for which each actor
consumed a relatively interior bundle.
– A compensated halving of one good’s price
– A money-illusion condition
Capuchin Money and Trading
Baseline and Compensated Price Shift
12
11
10
9
8
7
6
5
4
3
2
1
0
0
2
4
6
8
10
12
14
16
18
20
22
Capuchin Money and Trading
Baseline and Money Illusion Condition
12
10
8
6
4
2
0
0
2
4
6
8
10
Broader Tasks:
Now have subjects trained on a five-arm
mechanism, allows two subjects to play
either an ultimatum or dictator setup.
Conclusions:
Biology:
Economics:
1. Strong evidence of
Reciprocal Altruism.
1. Sophisticated and
interactive behavior
not confined to
humans.
2. Evidence Tamarins
are quite sophisticated
about reciprocal play.
2. Informs parsimony,
suggests wide scope
for theory of fairness.