Exploring Self-Interest

6. You are to split $10 between yourself and an anonymous member of the class. Your "partner" will either accept or reject your decision. If he accepts it, you both get what you decided. If he rejects it, neither of you get anything at all. How would you split the sum?
I will take _________ and leave _________ for you.

Now suppose that you are the recipient of the offer. How much would you have to be offered to accept?

Can you figure out what would happen if everyone were rationally self-interested in the way the economists assume? Did you make your decision in a way that satisfies rational self-interest?

The above problem is known as the "ultimatum game." If you search for it on the web, you should discover why this little problem presents troubling problems for economics.

7. While we are looking at strange games, we might as well look at the game of chicken. Search the internet for {"game of chicken" "game theory"}. What is the game of chicken? How is it similar to and different from the prisoner's dilemma?

8. The idea that "good" motives can lead to tragic results was given the name "pathological altruism" by Barbara Oakley, who is not an economist but rather an engineer. Search for the concept on the Internet. How is it best described? Is it a concept that economists should find easy or hard to accept? Why?

Review Questions back Next