How Behavioral Game Theory Supports Schwartz’s Theory of Self-Interested Ideology

Is self-interest a natural expression of human nature? Or, is it an ideology—an unnatural societal construct?

In “Crowding Out Morality,” Professor Barry Schwartz argues that we have created a society where our institutions and structures operate under the assumption that human nature is self-interested.  These institutions, in turn, crowd out moral motives and altruistic instincts, thereby causing us to exhibit self-interested behavior.  A central premise of Schwartz’s argument is that the ideology of self-interest is a product of society itself.  That is, the ideology of self-interest is self-fulfilling and man-made: In a society that embraces the view that self-interest is a dominant motive, self-interest will dominate; in a society that does not prize self-interest, however, altruism can move us.  To buttress Schwartz’s premise that the ideology of self-interest is an unnatural societal construct—as opposed to a natural expression of human nature—let’s play a game.

Imagine that a researcher approaches you and asks you to play a one-round game against an unrelated stranger, with no one watching.  Intrigued, you agree, and listen carefully:

“You are Player 1, the Proposer; your opponent is Player 2, the Responder.  I have ten $10 bills.  I shall give you all $100.  Your job is to offer Player 2 a certain amount of the $100 pot.  If Player 2 accepts your offer, then I shall execute the distribution: Player 2 will receive the proposed amount, while you will receive the remaining amount.  If Player 2 rejects your offer, then neither of you will receive anything.  Zero for Player 1; zero for Player 2.”

Created by author with Gambit Game Theory Software.

What would you do?  What should you do?  If you were Player 2, what would/should you do?

Now, imagine another one-round game, once again pitting you, as Player 1, against an unrelated stranger, Player 2, with no third-party observer around to judge you.  This time, the researcher lays down the following framework: “Here, Player 1, is $10.  You can either hand your $10 over to Player 2, or you can take the money and run, in which case I shall give $10 to Player 2.  If you decide to give your $10 to Player 2, however, then your $10 investment will blossom into $40—all of which Player 2 owns.  Player 2 may then decide either to return a $20 cut to you and retain $20 for herself, or to keep all $40 of investment revenue for herself.  Player 1, it’s your move.”

Created by author with Gambit Game Theory Software.

Again, what would you do?

The reader might recognize the first game as the Ultimatum Bargaining Game, and the second as a version of the Trust Game (analogous to a sequential Prisoner’s Dilemma).  According to classical rational choice theory, the Bargaining Game should proceed as follows: “To maximize her monetary payoff, Player 1 should offer Player 2 the lowest possible amount: $10.  Such an offer is the optimal strategy because Player 2 knows that she will receive nothing if she rejects Player 1’s offer; therefore, Player 2 will be incentivized to accept any offer above nothing.  So, Player 1 will offer Player 2 one $10 bill; Player 2 will accept.  Game over.”  This account, of course, assumes that each player is cool and calculating, motivated only by the self-interested desire to maximize her own monetary payoff.

The classical rational choice theorist would apply the same presumption of full rationality to the Trust Game: “If Player 1 invests and Player 2 has ownership of the $40 investment revenue, Player 2 will keep the entire $40 for herself, as she has no incentive to return a $20 cut to Player 2.  And, because Player 1 knows that Player 2 will retain the $40 investment revenue for herself, Player 1 will withhold the initial contribution.  Player 1 will defect and each player will receive only $10—even though each player could have earned $20.  What a pity; how Pareto inefficient!”

Yet, despite the presumption of classical rational choice theory, human nature is complex. We are motivated by more than mere self-interest.  We are moved by emotions, norms, and situations—not only by money.  An ever-growing body of social scientific evidence reveals that the average person does not resemble Homo economicus, an inaccurate caricature of the prosocial being.

The ultimatum bargaining game, for example, does not invariably result in a minimal proposal and a begrudging acceptance.  As Professor Colin F. Camerer describes in Behavioral Game Theory (2005), the game has become the darling of the social scientific world, generating an enormous amount of data.  (The game has been tested across numerous methodological and demographic variables: stakes, repetition, anonymity, and experimenter blindness;  gender, race, age, academic major, and culture.)  The data reveal that Player 1 will often offer close to half the pot.  The median offer is around 40%; the modal offer is 50%.  Furthermore, although Player 2 will accept an offer that she perceives as fair, Player 2 will often reject an offer that she perceives as unfair.  About half the time, Player 2 will reject an offer that is less than 20% of the pie.  The typical Player 2 will sacrifice her own monetary payoff to punish the unfair behavior of Player 1.

Likewise, research into the Trust Game corroborates the conclusion that human nature is complicated.  Player 2 will often sacrifice her monetary payoff to reciprocate the trusting initial gesture by Player 1.

(The emerging discipline of evolutionary game theory has also entered the fray to explain how we evolved to care about more than profit-maximization.  The origin of human nature, however, is a topic for another post.  The interested reader should turn to Robert Frank’s Passions Within Reason or Matt Ridley’s The Origins of Virtue.  Suffice it to say that, in the evolutionary environment, it paid (i.e., it maximized reproductive fitness) to exhibit and to internalize an emotional proclivity for rewarding norm-abiding behavior and for punishing norm-violating behavior.)

As Professor Shwartz has pointed out, however, the story of human nature does not end at the conclusion that “we are not naturally self-interested.”  Even if we are not naturally inclined to offer the lowest possible amount in an ultimatum bargain, we are more likely to do so if we reside in a society where self-interest is the presumptive engine of human nature.  If the societal institutions and structures with which we engage operate under the assumption that we are self-interested, then we are likely to act in a self-interested fashion.

Indeed, cross-cultural data on the ultimatum bargaining game support Schwartz’s theory. Consider the below passage from Camerer’s work:

The big payoff from cross-culture comparison is finding variables that can explain cultural variation.  Differences in subject comprehension (rated by experimenters), arithmetic skills, education, anonymity of exchanges, and privacy (i.e., how much the neighbors know about your business) don’t seem to matter.  Two variables do predict differences in offers with a multiple R^2 = 0.68: the amount of cooperate activity or economies of scale in production (e.g., collective hunting for whales and big game); and the degree of “market integration.”  Market integration is an index combining the existence of a national language (rather than a local dialect,” the existence of a labor market for cash wages, and the framing of crops for cash.  Cultures with more cooperate activity and market integration have sharing norms closer to equal splits.

Perhaps a culture that exhibits “cooperative economic activity” is a society where the self-fulfilling ideology of self-interest has yet to take over.  Meanwhile, a culture that does not value such activity may have created a society where self-interest is a robust force—thereby enabling self-interested behavior to flourish.

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