Why I like economics... Reading an article in the Economist of July 7th made me realise once again why economics is so interesting. Its the question of whether all economic decisions taken are rational decisions, and in particular those that concerning the splitting of a pot of money. The example is from the ultimatum game where the first player proposes how to divide a sum of money with the second party. If the second player rejects this division, neither gets anything. If the second accepts, the first gets his demand and the second gets the rest. You'd think that the second party would always accept the money offered, who would reject free money?? However, this often doesn't happen when the offer is low, usually under 25% of the stash of money. Of course, the rejection of money is often done by people not trained in economics.
To continue along these lines a doctor from Harvard University tried to understand why even economists would reject the offer of free money. The study looked at only male subjects and found that the respondents that rejected the offer of free money had a 50% higher level of testosterone than the average level of the accepting respondents. In fact, in a final offer game (where only one offer is made) 5 of the 7 men with the highest level of testosterone rejected a $5 ultimate offer (out of a pot of $40), yet only one of the 19 others made the same decision. The explanation for these results? People strive for relative instead of absolute prosperity. They would rather accept less themselves than see a rival get ahead. This behaviour is more likely in individuals with high testosterone levels, since that hormone is linked to social dominance.
The question remains whether this behaviour is irrational. It is not irrational per sé, but it is differently rational. The things that money can buy are merely a means to an end, in this case social status, which consequently brings desirable reproductive opportunities (yes, SEX!!!). If another route brings this status more directly, the money becomes irrelevant. Therefore, the money isn't important, the sex is!!! (would this premise also hold for women??)
If you really want to wreck your brain, think about what effect oestrogen might have in this economic game.
Information and theory found in the article: "Money isn't everything" from The Economist of July 7th 2007.
If you really want to wreck your brain, think about what effect oestrogen might have in this economic game.
Information and theory found in the article: "Money isn't everything" from The Economist of July 7th 2007.
No comments:
Post a Comment