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I know why people can turn down free money

The ‘Ultimatum Game’

is loved in equal measure

by both psychologists

and economists alike because

it says much about human behaviour

and our approach to money.

 

The ‘Ultimatum Game’ is played between two people who have to decide how to split an amount of money. One is randomly chosen to make an offer, and if this is accepted by the other, they each get their agreed share. However, if the offer is rejected, neither of them gets a penny. It’s as simple as that.

So, if you were playing the Ultimatum Game and £1000 was at stake, how much would you offer the other person? And if you were the other person, how much would you have to be offered to accept?

Well, in studies, most people who agreed an offer, split the cash somewhere between 40% and 60%. That’s to say, one person sometimes offered only 40% of the amount, but the other person was happy to accept. Well, maybe not happy, but they accepted all the same. Of course, they could have rejected the offer but then neither would have got a share of the free money.

But here’s the thing that excites psychologists. When offered 30% or less, many people reject it even though this means they get nothing. This proves how humans are economically irrational – particularly when your blood is boiling.

It might also explain why gamblers find it hard to cut their losses. It makes no sense to continue but they do so anyway. In the case of the Ultimatum Game, it seems that our sense of injustice kicks in with the offer of such a derisory sum. So we elect to punish the other person’s greed by rejecting it, even though neither then get a share.

Economists point out that players of the Ultimatum Game forget it's a one-shot deal. Being ‘fair’ doesn’t matter since the other person can only accept or reject the offer. All you have to do is work out the minimum they’re likely to accept. It’s all about knowing what the other person is thinking.

Which reminds me of a story I heard about Kelvin Mackenzie when he was editor of The Sun. He decided to sack the paper's horoscope writer and called the unfortunate individual into his office. "I suppose you know why you're here," said Kelvin. "And if you don't, that's why you’re here."

It’s better than you can make up.

Whether Kelvin was being fair I don’t know, but what I do know is that the ‘Ultimatum Game’ game demonstrates most people act fairly, or at least want others to see them acting fairly. I know why people can turn down free money. They want ‘fairness’.

And this is a highly rational custom in a society where we have to work together and don’t like cheats to prosper. Of course, what the Ultimatum Game ultimately demonstrates is how many psychological complexities can be drawn from a very simple game.

Now if you’ll excuse me I’ve got to figure out how to get a Trivial Pursuit cheese out of my ear. They’re such bad losers in my house.

By Phil Hesketh