Debate on Ernst Fehr's Ultimatum Game is Joined

Jason Biggeman of Productivity Shock responds to our exchange thsi week with a most interesting and thoughtful defence of his position on self-interest as shown in the 'Ultimatum Game' as reported by Ernst Fehr. It is well worth reading and thinking about. Aslo look up the original exchange on both Productivity Shock and further down this weeks Blogs here. I shall reply tomorrow and I hope we can move towards a clarification of our differences in our interpretations of the same game. Jason writes, starting with three paragrpahs from my posting:

"From Gavin Kennedy's remarks on my earlier post about Ernst Fehr:

I have my own suspicions of altruism as an explanation for much, except in the form of reciprocation (when it ceases to be pure altruism). Reciprocation, unlike negotiation, is an implicit transaction: to do you a favour of some kind and I expect a favour in return at some other time in the future. Should the favour not be reciprocated when it is appropriate for you to do so, I shall pass on any opportunity to do you another favour. The sequence of reciprocal favours terminates with you.
...
The division of behaviours into either pure altruistic or pure self-interest is part of the problem in discussions of evolutionary "fitness", as is self-interest as it is understood in economics. Humans practise mixed motives in their behaviours. We get into tangles when we interpret from familiar chains of reasoning (like Bernard Mandeville) to produce "altruism is really self-interest".

In my view, Adam Smith was more accurate when he made his famous quotation that we will be more likely to transact for our dinner from the Butcher, Brewer and Baker by appealing to their self-interest (offering them money) than to their benevolence (nobody, other than the Deity, who has everything, can altruistically supply our dinners for our lifetimes, and then at an extremely low standard of living). To serve our self-interest – our eating to survive and reproduce – we serve the self-interest of others. That part of the exchange transaction is usually overlooked by economists – if the parties to a negotiation remained trapped in their own self-interest they would seldom complete their transaction.

The distinction between self-interest and altruism is not a question of who benefits from a behavior -- it is a question of motivation. Altruism is "unselfish concern for the welfare of others; selflessness". By definition, exchange transactions are not unselfish giveaways, and therefore they are not instances of altruism. Therefore I do not agree that, to any significant extent, humans are motivated by a mixture of self-interest and altruism; rather, self-interested motivation dominates.

I think Fehr's work does show that humans have evolved some tendencies that, due to changes in the social environment, may not be consistently well-aligned with achieving preferred outcomes. However, in his presentation, he goes beyond that to suggest that motivation itself has evolved -- and it's this that I take issue with. It's one thing to say we've evolved an initial, emotional reaction that now occasionally works against us; it's another to say we have underlying altruistic motivations.

In the ultimatum game, the argument is that (because of the social environment in which most of our evolution transpired) we don't immediately trust or believe or understand fully that we will never encounter the opponent again, and therefore the immediately chosen action does not result in a preferred outcome. I buy this argument. However, if Player B were to reflect dispassionately on the situation, and he was truly convinced he would never see Player A again (and Player B didn't have religiously influenced motivation, i.e., earthly faux-altruistic behavior motivated by the self-interested desire to gain Heaven), I can't imagine that Player B decides to teach this stranger a lesson at substantial cost to himself.

My empirical evidence for this claim is as follows: Certainly, not everyone will bother to engage in such dispassionate reflection, nor will everyone place enough trust in the designers of economic experiments to feel certain that Player A will never be seen again. But as Fehr's work shows: there are at least some people -- namely, academic economists -- who are willing to engage in that reflection and do trust the experiment designers. I think this phenomenon is common: not everyone has time or desire to reflect fully on everything they are doing, but if they did, they would act differently, because what fundamentally motivates them -- self-interest -- is unchanged by reflection.