ultimatum game

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pages: 519 words: 104,396

Priceless: The Myth of Fair Value (And How to Take Advantage of It) by William Poundstone

availability heuristic, Cass Sunstein, collective bargaining, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, East Village, en.wikipedia.org, endowment effect, equal pay for equal work, experimental economics, experimental subject, feminist movement, game design, German hyperinflation, Henri Poincaré, high net worth, index card, invisible hand, John von Neumann, Kenneth Arrow, laissez-faire capitalism, Landlord’s Game, loss aversion, market bubble, mental accounting, meta analysis, meta-analysis, Nash equilibrium, new economy, Paul Samuelson, payday loans, Philip Mirowski, Potemkin village, price anchoring, price discrimination, psychological pricing, Ralph Waldo Emerson, RAND corporation, random walk, RFID, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, rolodex, social intelligence, starchitect, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, ultimatum game, working poor

That makes a case for offering an even split, as a plurality of Cornell students did. The thing is, neither life nor the ultimatum game is necessarily fair. The two participants have different choices and different powers. Unless the responder is so upset that he is willing to cut his own throat, the proposer has power and incentive to shave a little off the even split. Why not offer $4, or $3 . . ., uh, or even $1? You can see where this is going. For any responder, there’s a point where he gets so angry that he vetoes. A greedy-though-prudent proposer would want to approach that point as closely as possible without exceeding it. Where is that point, exactly? That is one question that the ultimatum game asks. It’s easy to recognize echoes of the ultimatum game in your own life. Every day people use pushiness, entitlement, and chutzpah to get their way in the world.

Boul-ware (and the many labor negotiators who attempted to emulate him) was acting like a strategic proposer in the ultimatum game. The more usual back-and-forth kind of bargaining can be thought of as a sequence of ultimatum games. Offers on real estate are structured as ultimatums: This offer must be accepted by 6:00 p.m. Tuesday, or it’s null and void. Unless you accept the latest offer, you run the risk that the other side will walk away. Bargaining is often a polite, socially sanctioned ritual. I lower my offer and you raise yours in stairstep increments. We meet somewhere in the middle. Sometimes fake “ultimatums” are part of that ritual. “That’s my final offer, take it or leave it. I’m leaving . . . I’m actually walking out the door . . .” Each side may know the other isn’t serious. The crux of negotiation is how to deal with tough bargainers making lopsided demands. The ultimatum game presents, in concentrated form, the truly difficult part of negotiation.

There is a “beauty premium” for the congenitally fabulous. For everyone else, there’s a plainness penalty. Sara Solnick thought the ultimatum game might be a way to investigate the effects of physical appearance on prices and salaries. This is normally a complicated matter, because there are many reasons an employer might pay attractive people more. In sales or waiting tables, appearance is part of the total package. An employer can reason that the public likes an attractive face. The ultimatum game eliminates at least some of these factors. “There are no productivity issues, no expectations, and no contact between subjects,” Solnick and collaborator Maurice Schweitzer wrote. If looks matter even in the ultimatum game, they probably matter whenever people set a price or negotiate a salary. In Solnick and Schweitzer’s experiment, seventy student volunteers agreed to be photographed.


pages: 236 words: 66,081

Cognitive Surplus: Creativity and Generosity in a Connected Age by Clay Shirky

Andrew Keen, Brewster Kahle, Burning Man, citizen journalism, corporate social responsibility, Dean Kamen, experimental economics, experimental subject, fundamental attribution error, invention of movable type, invention of the telegraph, Kevin Kelly, means of production, meta analysis, meta-analysis, Nelson Mandela, New Urbanism, Nicholas Carr, social software, Steve Ballmer, The Nature of the Firm, the scientific method, ultimatum game

No group of proposers playing the classic version of the Ultimatum Game ever behaved as selfishly as neoclassical theory predicted, and no group of responders was ever moved to accept a proposed split that deviated too far from some perceived sense of fairness, no matter how sensible such a choice would be in the short term. In the Ultimatum Game, people behave as if their relationship matters, even if they are told it doesn’t, even if they are assured it doesn’t, even if they have only a single interaction with an unknown partner. Critiques of the Ultimatum Game have contended that the game would work if the participants were convinced that their action would have no social consequences outside the game. This criticism misses the fact that if we have a hard time imagining situations in which our dealings will be completely anonymous, it may be because we are deeply social. We are terrible at acting as if we were purely isolated because such isolation is rare and unnatural. (Even economics students, famously among the greediest proposers in the Ultimatum Game, never get anywhere near nine-to-one splits.)

By creating a simple set of rules, experimenters can observe human behavior under relatively controlled conditions. The trick is to create an experiment that will cleanly illuminate the part of human behavior the researcher is interested in. One of the most famous and elegant experimental games in social science is called the Ultimatum Game, first tried in 1982 by Werner Güth, Rolf Schmittberger, and Bernd Schwarze at the University of Cologne, and repeated countless times around the world, because its results were so at odds with the predictions of neoclassical economics. The Ultimatum Game is a two-person interaction. Imagine you and a stranger are the players, and you each have a role: your unknown partner is the proposer, and you are the responder. The game starts when the researcher gives your partner ten dollars, instructing her that she is to decide how she would like to split the money between the two of you.

This result—fairly intuitive, if you imagine yourself on the short end of that particular stick—was a shock to neoclassical theory (what rational actor would give up a free dollar for the sake of mere emotional satisfaction?). As the results of the Ultimatum Game became more widespread, so did the challenges to its conclusions. Versions were run with hundreds of dollars at stake, with ever-tighter controls on the anonymity between the participants so they wouldn’t worry about retribution, with experimental subjects of different ages, different classes, and different cultures. In one version called the Dictator Game, the proposer is able to declare the terms of the split without the recipient’s having any say at all. Even here, the proposed split was more generous than expected. The experiment was performed in countless variations, but the attempt to uncover the secretly rational core of humanity simply failed. No group of proposers playing the classic version of the Ultimatum Game ever behaved as selfishly as neoclassical theory predicted, and no group of responders was ever moved to accept a proposed split that deviated too far from some perceived sense of fairness, no matter how sensible such a choice would be in the short term.


pages: 324 words: 93,175

The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home by Dan Ariely

Alvin Roth, assortative mating, Burning Man, business process, cognitive dissonance, corporate governance, Daniel Kahneman / Amos Tversky, end world poverty, endowment effect, Exxon Valdez, first-price auction, Frederick Winslow Taylor, George Akerlof, happiness index / gross national happiness, hedonic treadmill, IKEA effect, Jean Tirole, job satisfaction, knowledge economy, knowledge worker, loss aversion, Peter Singer: altruism, placebo effect, Richard Thaler, Saturday Night Live, second-price auction, software as a service, The Wealth of Nations by Adam Smith, ultimatum game, Upton Sinclair, young professional

It is another matter altogether to realize that these emotional influences can continue to affect us for a long, long time. The Ultimatum Game To test our emotional-cascade idea, Eduardo and I had to do three key things. First, we had to either irritate people or make them happy. This temporary emotional baggage would set the stage for the second part of our experiment, in which we would get our participants to make a decision while under the influence of that emotion. Then we would wait until their feelings subsided, get them to make some more decisions, and measure whether the earlier emotions had any long-lasting influence on their later choices. We got our participants to make decisions as part of an experimental setup that economists call the ultimatum game. In this game there are two players, the sender and the receiver. In most setups, the two players sit separately, and their identities are hidden from each other.

After all, we’ve all had experiences with unfair offers in the past, and we can imagine that we would feel insulted and say “Forget it, you #$%*&$#!” if someone were to suggest a $19:$1 split. This understanding of how unfair offers make people feel and behave is why most people in the ultimatum game offer splits that are closer to $12:$8 and why those splits are almost always accepted. I should note that there is one interesting exception to this general rule of caring about fairness. Economists and students taking economics classes are trained to expect people to behave rationally and selfishly. So when they play the ultimatum game, economic senders think that the right thing to do is to propose a $19:$1 split, and—since they are trained to think that acting rationally is the right thing to do—the economic recipients accept the offer. But when economists play with noneconomists, they’re deeply disappointed when their uneven offers are rejected.

., 187–88 hedonic treadmill and, 175 placing limits on, 186–87 reducing, 185–86 spacing of, 185, 186 contrafreeloading, 60–63 Jensen’s study of, 60–62, 63 standard economic view at odds with, 62–63 Converse, 95 cooking: children’s involvement in, 121 enjoyment factor and, 62n, 105–6 semi-preprepared food and, 85–88 CO2 emissions, 251–52 counting strategies, 282–83 Count of Monte Cristo, The (Dumas), 123 creation, pride of: ideas and, see Not-Invented-Here (NIH) bias self-made goods and, see IKEA effect creativity, bonuses and improvements in, 47–48 Csíkszentmihályi, Mihály, 49 cultures, organizational: acronyms and, 120 Not-Invented-Here bias and, 119–21 customer revenge, 131–51 against airlines, 142–43 apologies and, 149–51, 152 author’s experience with Audi customer service and, 131–36, 137, 147–49, 153–54 distinction between agents and principals and, 144–47 Farmer and Shane’s “Yours Is a Very Bad Hotel” and, 140–41, 146 fictional case study for Harvard Business Review on, 147–49 increase in, 143 Neistat brothers’ video on Apple’s customer service and, 141–42 passage of time and, 151 phone call interruption experiments on, 135–39, 145–46, 150–51 customization, 94–96 of cars, 88, 89, 94 effort expended in, 89, 95–96 overvaluation despite removing possibility of, 96 of shoes, 95, 96 D Dallaire, Roméo, 255 Darfur, 238, 253 Dart Ball game, 23, 34 Darwin, Charles, 157 dating, 191–235 market failures in, 213–15, 216–17, 220–21, 230–32, 233–35 playing hard to get and, 104 standard practice of, 224–25, 227–28 yentas (matchmakers) and, 213 see also assortative mating; online dating; speed dating decision making: author’s medical care and, 284–88 cooling off before, 257, 279 emotions and, 261–77 gender differences and, 274–76 irreversible decisions and, 285, 286 rationalization of choices in, 287 from rational perspective, 5–6 short-term, long-term decisions affected by, 264–65, 270–74, 276–77 stability of strategies for, 261–65; see also self-herding ultimatum game and, 265–70, 275–76 dentistry, adaptation to pain and, 161–62 design, taking people’s physical limitations into account in, 230–32 destroying work in front of workers, 74–76 Dichter, Ernest, 86 disease: adaptation to pain and, 165, 167 preventative health care and, 251, 256 “survivor” rhetoric and, 241–42 Disney, 154 distraction, performance-based incentives and, 30, 36 division of labor, 77–80 IT infrastructure and, 77, 79–80 Marx’s alienation notion and, 79 Smith’s observations on, 77–78 divorce, foreseeing outcome of, 173 Dodson, John, 18–20, 22, 31, 47 do-it-yourself projects, see IKEA effect Donath, Judith, 225 Dostoyevsky, Fyodor, 157 Doubletree Club, Houston, 140–41, 146 dreams, author’s self-image in, 182–83 DreamWorks SKG, 154 driving: momentary anger during, 261 safety precautions and, 6–7 texting during, 6, 7, 8 see also cars drop-in-the-bucket effect, 244–45, 252, 254–55 Dumas, Alexandre, 123 E Eastwick, Paul, 172–73 Edison, Thomas, 117–19, 122 effort: increase in value related to, 89, 90, 95–96, 105–6; see also IKEA effect joy derived from activity and, 71–72 meaningful work conditions and, 72 ownership of ideas and, 114–16 see also labor egg theory, 86–88 Eisner, Michael, 154 electric chair, 119 electricity, alternating current (AC) vs. direct current (DC), 117–19 emotional cascades, 265–78 gender differences and, 274–76 romantic relationships and, 277–78 ultimatum game and, 265–76 emotional priming: empathy for plight of others and, 246–48 ultimatum game and, 268–70 emotions, 43, 237–79 appeals to, willingness to help others and, 240–42, 248–50, 253–54, 256 decision making and, 261–77; see also decision making in past, humans’ poor memory of, 264 transience of, 257, 261, 270 see also empathy; negative feelings, acting on empathy: animals’ suffering and, 249, 252 apathy toward statistical victims and, 238–41, 242, 246, 247–49, 252–53 Baby Jessica saga and, 237–38 calculating vs. emotional priming and, 246–48 clear moral principles and, 255 closeness and, 243, 245, 254 drop-in-the-bucket effect and, 244–45, 252, 254–55 emotional appeals and, 240���42, 248–50, 253–54, 256 global warming and, 251–52 identifiable victim effect and, 239–42, 248, 256 overcoming barriers to, 252–56 rules to guide our behavior and, 254–55 thought experiment of drowning girl and, 242–43, 245 toward one person vs. many in need, 237–56 vividness and, 24, 243n, 244, 245 endowment effect, 285, 286 Enron, 216 evolution, mismatch between speed of technological development and, 8–9 experiments, 10–11, 288–95 business or public policy and, 292–94, 295 of Gideon, 288–89 medical practice and, 289–92 rational economists’ criticisms of, 49–51 see also specific topics Exxon Valdez oil spill, 249 F fairness, sense of: in chimpanzees, 127 decision making and, 266–67; see also ultimatum game gender differences and, 275–76 Fallows, James, 158 Farmer, Tom, 140–41, 146, 148–49 FedEx, 108–9 feedback, about work, 74–76 Feeks, John, 118–19 Fehr, Ernst, 125–26 financial incentives: meaning of labor and, 72–73, 76 see also bonuses financial markets, safety measures for, 7 financial meltdown of 2008, 7, 21, 216 chronology of events in, 129–30 desire for revenge in wake of, 128–31 lack of experimental approach to, 293 outraged public reaction to bailout in, 128–29, 130 Finkel, Eli, 172–73 First Knight, 50 fixation, pride in creation and ownership and, 89, 122 food: animals’ preference for working for, 59–63 semi-preprepared, 85–88 shortages of, identifiable victim effect and, 239–41 see also cooking Food and Drug Administration (FDA), 292 Ford, Henry, 78–79, 94 Forgea (white terrier), 249 Fox, Michael J., 254 “Fox and the Grapes, The” (Aesop), 198–99 Frank, Barney, 41 Frankl, Viktor, 45 free food, animals’ preference for working for food vs., 60–62 Frenk, Hanan, 161–65, 300 Friends, ultimatum game and, 269, 270–71, 272 frog experiment, 157–58 Frost, Jeana, 219–20, 229, 300 Fryer, Bronwyn, 148 furniture, do-it-yourself, 83–84, 96, 105, 106 future, foreseeing adaptation to changes in, 160, 171–74 G gardening: children growing food and, 121 enjoyment factor and, 105–6 gender differences: assortative mating and, 209, 211 decision making and, 274–76 pain threshold and tolerance and, 168–69 Gideon, 288–89 global warming, 158, 251–52 Gneezy, Ayelet, 135, 144–45, 150, 300–301 Gneezy, Uri, 21, 44, 301 Gore, Al, 158, 252 government policies, experimental approach to, 292–94, 295 H happiness: comparisons to other people and, 189 consumer purchases and, 175, 185–88 inaccurate predictions about, 170–71 return to baseline of, 170 transient vs. constant experiences and, 187–88 Harvard Business Review (HBR), 147–49 health care, see medical care hedonic adaptation, 160–84 to annoying experiences, 177–79, 180 author’s personal history and, 181–84, 189 blindness and, 172–74 breaking up experiences and, 177–81 changes in workers’ pay and, 169–70 comparisons to other people and, 189 consumer purchases and, 175, 185–88 extending pleasurable experiences and, 176–78, 179–81, 185, 186 in future, foreseeing of, 160, 171–74 happiness baseline and, 170 life-altering injuries and, 171–72, 174 moving to California and, 176 new houses and, 168–69 pain and, 160–67 romantic breakups and, 172–73 to transient vs. constant experiences, 187–88 using our understanding of, 176–81, 184–90 hedonic disruptions, 177–81 hedonic treadmill, 175 Heingartner, Alexander, 45–46 Henry, O., 98 herding, 262 see also self-herding Herman, Edward, 45–46 Hippocrates, 82 Hogerty, Megan, 81 homeostatic mechanisms, 81 Hong, James, 201, 203 HOT or NOT study, 201–5, 208 gender differences in, 209, 211 Meet Me feature and, 204–5, 208, 209 humor, sense of, 199, 200, 207, 208, 228 Hurricane Katrina, 250, 251 I ideas: attachment to, see Not-Invented-Here (NIH) bias idiosyncratic fit and, 111–12 identifiable victim effect, 239–42, 248, 256 American Cancer Society and, 241–42 identity, connection between work and, 53–55, 79 idiosyncratic fit, ideas and, 111–12 ignoring workers, 74–76 IKEA, 83–84, 106 IKEA effect, 83–106 author’s creations in rehabilitation center and, 100–101 completion of project and, 101–4, 105 do-it-yourself furniture and, 83–84, 96, 106 effort expended and, 89, 90, 95–96, 105–6 four principles in, 104–5 and lack of awareness of overvaluation, 99 Legos experiment and, 96, 97 Local Motors cars and, 88, 89 Not-Invented-Here (NIH) bias and, 109–10, 121 origami experiments and, 91–94, 97, 98–99, 102–4 parents’ overvaluation of their children and, 97–98 practical implications of, 121–22 relaxation notion and, 105–6 removal of individual customization and, 96 semi-preprepared food and, 85–88 shoe design and, 95, 96 immediate gratification, 5 Inconvenient Truth, An, 252 initiation into social groups, 89 injuries: association of pain with getting better after, 166–67 author’s dating prospects and, 191–96, 210–11 author’s decisions about his medical care and, 284–88 author’s personal history related to, 1–4, 13, 107, 160–62, 166–67, 181–84, 189, 191–96, 210–11, 281–88 battlefield vs. civilian, 167 foreseeing future after, 160 life-altering, adaptation to, 160, 171–72, 174 pain thresholds and tolerance related to severity of, 161–65 Institute for Evolutionary Anthropology, Leipzig, Germany, 126–27 insurance products, 233–34 interruptions: in pleasant vs. painful experiences, 177–81 TV commercials and, 181n see also phone call interruption experiments intuitions: bonuses and, 36–37 received medical wisdom and, 289–92 romantic, 172–73 testing of, 10n, 288–95 inverse-U relationship, defined, 19 iPods and iPhones, battery replacement in, 141–42 irrationality: summary of findings on, 288 upside as well as downside of, 11–12, 294 irreversible decisions, 285, 286 IT infrastructure, division and meaning of labor and, 77, 79–80 J Janoff-Bulman, Ronnie, 170 Jensen, Glen, 60–62, 63 Jensen, Keith, 127 Jewish tradition, 254–55 Johns Hopkins Bloomberg School of Public Health, Baltimore, 152 Joyless Economy, The (Scitovsky), 188 justice, see fairness, sense of K Kahneman, Danny, 32n, 175–76 Kamenica, Emir, 66, 301 Katzenberg, Jeffrey, 154 Kemmler, William, 119 kinship, empathy and, 243 Krishnamurti, Tamar, 172–73 Krzyzewski, Mike, 39 L labor: connection between identity and, 53–55, 79 contrafreeloading and, 60–63 economic model of, 55, 62–63, 105 financial incentives and, see bonuses meaning of, see meaning of labor overvaluation resulting from, see IKEA effect on projects without meaning, 56–57, 63–72 Labyrinth game, 23 Lee, Leonard, 132, 134, 197, 201–2, 301–2 Lee, Sandra, 87–88 leeches, medicinal use of, 290–91 Legos experiments: on IKEA effect, 96, 97 on reducing meaningfulness of work, 66–74, 77, 80 letter-pairs experiment, 74–76, 80 life-altering events, hedonic adaptation and, 170 Life as a House, ultimatum game and, 268, 269, 270, 272, 276 light, adaptation to changes in, 159 Local Motors, Inc., 88, 89 Loewenstein, George, 21, 44, 80–81, 172–73, 197, 201–2, 239–41, 246–48, 302 long-term objectives, short-term enjoyments vs., 4–5 loss aversion, 32–33, 285, 286 lottery winners, hedonic adaptation of, 170, 171 “Love the One You’re With,” 197, 211–12 M malaria, 250, 251 Man’s Search for Meaning (Frankl), 45 marketing, adaptation and, 158 market mechanisms, 215–16 dating and, 213–15, 216–17, 220–21, 230–32, 233–35 Marx, Karl, 79 massages, extending pleasure of, 179–80 matchmakers (yentas), 213 Mazar, Nina, 21, 30, 44, 302 McClure, Jessica (Baby Jessica), 237–38 meals, see cooking meaning of labor, 53–82 in acknowledged, ignored, and shredded conditions, 74–76 animals’ preference for working for food and, 59–63 blogging and, 65 division of labor and, 77–80 draining work of meaning and, 55–57, 63–77 financial incentives and, 72–73, 76 joy derived from activity and, 71–72 labor-identity connection and, 53–55, 79 Legos experiment and, 66–74, 76, 80 lessons for workplace on, 80–82 letter-pairs experiment and, 74–76, 80 “meaning” vs.


pages: 500 words: 145,005

Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

"Robert Solow", 3Com Palm IPO, Albert Einstein, Alvin Roth, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, Berlin Wall, Bernie Madoff, Black-Scholes formula, business cycle, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, information asymmetry, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, market clearing, Mason jar, mental accounting, meta analysis, meta-analysis, money market fund, More Guns, Less Crime, mortgage debt, Myron Scholes, Nash equilibrium, Nate Silver, New Journalism, nudge unit, Paul Samuelson, payday loans, Ponzi scheme, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Silicon Valley, South Sea Bubble, Stanford marshmallow experiment, statistical model, Steve Jobs, Supply of New York City Cabdrivers, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Vilfredo Pareto, Walter Mischel, zero-sum game

There is clear evidence that people dislike unfair offers and are willing to take a financial hit to punish those who make them. It is less clear that people feel morally obliged to make fair offers. Although it is true that in the Ultimatum Game the most common offer is often 50%, one cannot conclude that Proposers are trying to be fair. Instead, they may be quite rationally worried about being rejected. Given the empirical evidence on respondents’ behavior, the profit-maximizing strategy in the Ultimatum Game is for the Proposer to offer about 40% of the pie. Lower offers start to run the risk of being rejected, so a 50% offer is not far from the rational selfish strategy. Whether the offers made by Proposers are driven by fairness or selfish concerns, the outcomes of the Ultimatum Game appear to be quite robust. Proposers make offers of close to half the pie, and Responders tend to reject offers of less than 20%.

Nevertheless, one question that people have long wondered about is whether the tendency to reject small offers in the Ultimatum Game persists as stakes increase. A natural intuition shared by many is that as the stakes go up, the minimum offer that will be accepted goes down as a fraction of the total pie. That is, if when playing for $10 the average minimally acceptable offer is $2, then when the stakes are raised to $1,000, would people accept less than $200? Investigating this hypothesis has been plagued by two problems: running a high-stakes version of the Ultimatum Game is expensive, and most Proposers make “fair” offers. Experimenters in the United States ran a version of the Ultimatum Game for $100, and the results did not differ much from lower-stakes games. Even more telling is evidence from running the game in poor countries, where the cost of living allows experimenters to raise the stakes even higher.

Of course, I could not say to my critics that by clinging to their beloved theories they were merely paying attention to sunk costs, but I could introduce the one bit of new experimental data we had included in the paper. The data came from a version of the Ultimatum Game. In the usual version of the Ultimatum Game, the experimenter provides the money that the participants divide. Now we had created a version in which the experimenter makes money! We asked students to bring $5 to class for the purpose of an in-class demonstration. (Participation was voluntary.) Then each student filled out a form indicating how he would play a $10 version of the Ultimatum Game, with the money coming from the $5 each player had contributed. Players indicated their contingent decisions both as Proposer and as Responder, were told that they would be randomly assigned to one of those roles, and then were paired with another, anonymous student who had been given the other role.¶ If sunk costs don’t matter, then the outcome of this game should be identical to the one where the experimenter provides the money.


pages: 326 words: 106,053

The Wisdom of Crowds by James Surowiecki

AltaVista, Andrei Shleifer, asset allocation, Cass Sunstein, coronavirus, Daniel Kahneman / Amos Tversky, experimental economics, Frederick Winslow Taylor, George Akerlof, Howard Rheingold, I think there is a world market for maybe five computers, interchangeable parts, Jeff Bezos, John Meriwether, Joseph Schumpeter, knowledge economy, lone genius, Long Term Capital Management, market bubble, market clearing, market design, Monkeys Reject Unequal Pay, moral hazard, Myron Scholes, new economy, offshore financial centre, Picturephone, prediction markets, profit maximization, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Toyota Production System, transaction costs, ultimatum game, Yogi Berra, zero-sum game

And the interesting thing is that the proposers anticipate this—presumably because they know they would act the same way if they were in the responder’s shoes. As a result, the proposers don’t make many low offers in the first place. The most common offer in the ultimatum game, in fact, is $5. Now, this is a long way from the “rational man” picture of human behavior. The players in the ultimatum game are not choosing what’s materially best for them, and their choices are clearly completely dependent on what the other person does. People play the ultimatum game this way all across the developed world: cross-national studies of players in Japan, Russia, the United States, and France all document the same phenomenon. And increasing the size of the stakes doesn’t seem to matter much either. Obviously, if the proposer were given the chance to divide $1 million, the responder wouldn’t turn down $100,000 just to prove a point.

Presumably if they’d been given the chance to stop their comrades from enjoying those riches—as the players in the ultimatum game were—the capuchins would have gladly taken it. Capuchins and humans alike, then, seem to care whether rewards are, in some sense, “fair.” That may seem like an obvious thing to worry about, but it’s not. If the monkey thought a rock for a cucumber was a reasonable trade and was happy to make it before he saw his comrade get a grape, she should be happy to make the trade afterward, too. After all, her job hasn’t gotten any harder, nor is the cucumber any less tasty. (Or if it is, that’s because she’s obsessed with what her neighbor’s getting.) So her feelings about the deal should stay the same. Similarly, the responders in the ultimatum game are being offered money for what amounts to a few minutes of “work,” which mostly consists of answering “yes” or “no.”

But people are willing to do it in order to make sure that the distribution of resources is fair. Does this mean people think that, in an ideal world, everyone would have the same amount of money? No. It means people think that, in an ideal world, everyone would end up with the amount of money they deserved. In the original version of the ultimatum game, only luck determines who gets to be the proposer and who gets to be the responder. So the split, people feel, should be fairly equal. But people’s behavior in the game changes quite dramatically when the rules are changed. In the most interesting version of the ultimatum game, for instance, instead of assigning the proposer role randomly, the researchers made it seem as if the proposers had earned their positions by doing better on a test. In those experiments, proposers offered significantly less money, yet not a single offer was rejected.


pages: 503 words: 131,064

Liars and Outliers: How Security Holds Society Together by Bruce Schneier

airport security, barriers to entry, Berlin Wall, Bernie Madoff, Bernie Sanders, Brian Krebs, Broken windows theory, carried interest, Cass Sunstein, Chelsea Manning, commoditize, corporate governance, crack epidemic, credit crunch, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Graeber, desegregation, don't be evil, Double Irish / Dutch Sandwich, Douglas Hofstadter, experimental economics, Fall of the Berlin Wall, financial deregulation, George Akerlof, hydraulic fracturing, impulse control, income inequality, invention of agriculture, invention of gunpowder, iterative process, Jean Tirole, John Nash: game theory, joint-stock company, Julian Assange, longitudinal study, mass incarceration, meta analysis, meta-analysis, microcredit, moral hazard, mutually assured destruction, Nate Silver, Network effects, Nick Leeson, offshore financial centre, patent troll, phenotype, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, profit motive, race to the bottom, Ralph Waldo Emerson, RAND corporation, rent-seeking, RFID, Richard Thaler, risk tolerance, Ronald Coase, security theater, shareholder value, slashdot, statistical model, Steven Pinker, Stuxnet, technological singularity, The Market for Lemons, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, too big to fail, traffic fines, transaction costs, ultimatum game, UNCLOS, union organizing, Vernor Vinge, WikiLeaks, World Values Survey, Y2K, zero-sum game

Neuroscience is starting Kerri Smith (2011), “Neuroscience vs Philosophy: Taking Aim at Free Will,” Nature, 477:23–5. Ultimatum game Charles A. Holt (2000), “Y2K Bibliography of Experimental Economics and Social Science: Ultimatum Game Experiments,” University of Virginia. Hessel Oosterbeek, Randolph Sloof, and Gijs van de Kuilen (2004), “Cultural Differences in Ultimatum Game Experiments: Evidence From a Meta-Analysis,” Experimental Economics, 7:171–88. how the game works Werner Güth, Rolf Schmittberger, and Bernd Schwarze (1982), “An Experimental Analysis of Ultimatum Bargaining,” Journal of Economic Behavior & Organization, 3:267–88. turn down offers Hessel Oosterbeek, Randolph Sloof, and Gijs van de Kuilen (2004), “Differences in Ultimatum Game Experiments: Evidence from a Meta-Analysis,” Experimental Economics, 7:171–88. cultural backgrounds Donna L.

If the police and the judges are just as calculating as you and the taxi driver, why should they attempt to resolve the dispute fairly, rather than in favor of the side that gave them the biggest bribe? They might fear they would get caught and punished, but that fear assumes those doing the catching and punishing aren't calculating and will attempt to be fair and honest. (13) Neuroscience is starting to make inroads into that question, too. (14) The Ultimatum game was first developed in 1982, and has been replicated repeatedly by different researchers using different variants in different cultures; there are hundreds of academic papers about the Ultimatum game. Here's how the game works. Two strangers are put in separate rooms and told they will divide a pot of money between them. They can't meet each other, and they can't communicate in any way. Instead, one of the subjects gets to divide the money any way he wants. That division is shown to the second subject, who gets to either accept or reject the division.

This experiment has been conducted with subjects from a wide variety of cultural backgrounds. It has been conducted with large amounts of money, and in places where small amounts of money make a big difference. Results are consistent. (15) The Dictator game is like the Ultimatum game, but with one critical difference: the second player is completely passive. The first player gets to divide the money, and both players receive their share. If the first player wants to keep all of it, he does. The second player has no say in the division or whether or not it is accepted. In the Ultimatum game, the first player had to worry if the second player would penalize him. The Dictator game removes all of that second-guessing. The first player gets a pile of money, and hands the second player some, then keeps the rest. He is in complete control.


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The Secret of Our Success: How Culture Is Driving Human Evolution, Domesticating Our Species, and Making Us Smarter by Joseph Henrich

agricultural Revolution, capital asset pricing model, Climategate, cognitive bias, Daniel Kahneman / Amos Tversky, delayed gratification, demographic transition, endowment effect, experimental economics, experimental subject, Flynn Effect, impulse control, Monkeys Reject Unequal Pay, Nash equilibrium, out of africa, phenotype, placebo effect, profit maximization, randomized controlled trial, risk tolerance, side project, social intelligence, social web, Steven Pinker, The Wisdom of Crowds, theory of mind, ultimatum game

If the responder rejects, you both get nothing (no money). This means you’ll go home with only your show-up fee. This is the Ultimatum Game. Using game theory, we can determine what a person would do if they were interested only in maximizing their take-home pay. To figure this out, put yourself into the shoes of the responder. If the proposer offers you any money more than zero, you face a choice between zero (if you reject) and some positive amount of money (if you accept). If, for example, the proposer offers you $1, you can leave with $1 more by accepting it. Thus, if you are a money-maximizing responder, you should accept any positive offer. Proposers, realizing this, should offer only $1, which would be accepted. If humans were money-maximizers, Ultimatum Game experiments should reveal many low offers and few rejections of nonzero offers.

Not surprisingly, it turns out that this never happens in any human society. By contrast, experiments with primates show little or no evidence of motivations besides narrow self-interest in dealing with strangers. Chimpanzees, for example, never reject in the Ultimatum Game.10 In Western societies, most people offer half ($50 out of the $100), and enough people reject offers below 50% that it doesn’t pay to give less than half because the risk of having your offer rejected is too great. Interestingly, among people over about the age of 25, this willingness to offer 50% is mostly not driven by concerns about being rejected. To explore this, we can turn the Ultimatum Game into a Dictator Game by removing the possibility of rejection. In the Dictator Game, the proposer gives some portion of the $100 to the other player and the proposer keeps whatever is left. If people were strictly self-interested, the proposer would give nothing to the other player and take home the entire $100.

You could probably get away with this only in a department of anthropology. I had no classes to take, no advisors to work for, and no one really seemed to care what I was doing. I started by going to the library to take out a stack of books. I read books on cognitive psychology, decision-making, experimental economics, biology, and evolutionary psychology. Then I moved to journal articles. I read every article ever written on an economics experiment called the Ultimatum Game, which I’d used during my second and third summers with the Matsigenka. I also read a lot by the psychologists Daniel Kahneman and Amos Tversky, as well as by a political scientist named Elinor Ostrom. Kahneman and Ostrom would, years later, both receive Nobel Prizes in economics. Of course, along the way, I never stopped reading anthropological ethnographies (this was my “fun” reading). In many ways, that year was the first year of research on this book, and by the end of it, I had developed a murky vision for what I wanted to do.


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Obliquity: Why Our Goals Are Best Achieved Indirectly by John Kay

Andrew Wiles, Asian financial crisis, Berlin Wall, bonus culture, British Empire, business process, Cass Sunstein, computer age, corporate raider, credit crunch, Daniel Kahneman / Amos Tversky, discounted cash flows, discovery of penicillin, diversification, Donald Trump, Fall of the Berlin Wall, financial innovation, Gordon Gekko, greed is good, invention of the telephone, invisible hand, Jane Jacobs, lateral thinking, Long Term Capital Management, Louis Pasteur, market fundamentalism, Myron Scholes, Nash equilibrium, pattern recognition, Paul Samuelson, purchasing power parity, RAND corporation, regulatory arbitrage, shareholder value, Simon Singh, Steve Jobs, Thales of Miletus, The Death and Life of Great American Cities, The Predators' Ball, The Wealth of Nations by Adam Smith, ultimatum game, urban planning, value at risk

They think about their subjects as agents, or players, not people—and there is a big difference. We operate in a world in which we may sometimes be uncertain about our own objectives and will frequently be uncertain about the other player’s objectives. Real ultimatum games only superficially resemble the experimenter’s problem. These real-life problems are neither closed nor simple. Even in an everyday ultimatum problem like negotiating a deal for a new car, we don’t have the complete specification of the options available to us, and to the other player, that the ultimatum game provides. In a loose sense, we negotiate all the time—with our family and friends, our workmates, our employer. So we use oblique methods that depend on our interpretation of the context of the negotiations, and anger and a sense of fairness influence our responses to ultimatum problems.

Today the best computer can play chess about as well as the best human. The best chess computers function by combining the computational capacity of the machine with the professional skills of a team of grand masters. Even a cheap computer program will defeat an average player, but only because it is programmed with the skills of experts. The computer is an efficient decision-making aid, not an efficient decision maker. In the ultimatum game, two people have to agree how to share one dollar; otherwise they receive nothing. There is an argument that you should accept anything you are offered—one cent is better than nothing—and because that is true for the other player also, you should demand ninety-nine cents. But that isn’t what usually happens. In practice, many people reject low offers, even if the consequence is that they get nothing.

Scott Fitzgerald expressed a similar thought: “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time and still retain the ability to function.”5 The oblique decision maker, the fox, is not hung up on consistency and frequently holds contradictory ideas simultaneously. Chapter 20 DODGY DOSSIERS—How Spurious Rationality Is Often Confused with Good Decision Making What do people mean when they say it is irrational for us not to play the ultimatum game according to the game theorist’s predictions, irrational to reject proposals out of anger or to make them from a sense of fairness? They don’t mean that we would be better off if we didn’t have these reactions. The neuroscientist Antonio Damasio made famous the case of a patient who, after brain damage, retained his cognitive abilities but operated at a very low level of emotional response.


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The Penguin and the Leviathan: How Cooperation Triumphs Over Self-Interest by Yochai Benkler

business process, California gold rush, citizen journalism, Daniel Kahneman / Amos Tversky, East Village, Everything should be made as simple as possible, experimental economics, experimental subject, framing effect, informal economy, invisible hand, jimmy wales, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge economy, laissez-faire capitalism, loss aversion, Murray Gell-Mann, Nicholas Carr, peer-to-peer, prediction markets, Richard Stallman, Scientific racism, Silicon Valley, Steven Pinker, telemarketer, Toyota Production System, twin studies, ultimatum game, Washington Consensus, zero-sum game, Zipcar

If I would rather get, say, $10 while you are also getting $10, than get $12 while you get $100, then you can say that I care more about fairness of outcomes—how equal our shares are, in this case—than I care about my total payoff (which is higher in the unfair distribution than in the fair one). In a series of ultimatum game experiments, Swiss economist Ernst Fehr and several of his collaborators—Klaus Schmidt, Urs Fischbacher, and Armin Falk—demonstrated that indeed, under controlled experimental conditions, we do care about the fairness of the outcomes completely independently of what we will come away with, sometimes to the point where we would rather walk away with nothing than agree to an unfair share of a deal. The workhorse experiment in this line of literature is the ultimatum game. In this game, the experimenter gives one participant, the proposer, some amount of money, say $100. The proposer can then give whatever portion of this he wishes to the other participant, the responder.

Just as we are more accepting of gains won through luck or skill, we are more tolerant of outcomes that are unfair for reasons out of anyone’s control than we are of outcomes that are unfair because someone is taking advantage of the situation. Scientists have attempted to tease out how we respond to intention versus how we respond to outcomes through a clever manipulation of ultimatum games and similar experiments. In such experiments the computer determines how much the first-moving player will offer his partner. Indeed, when responders know that the other player has no control over how much he or she offers, the responders tend to accept lower offers in ultimatum games. Not only do we tend to forgive unfair outcomes that are out of another person’s hands, but we also tend to be more understanding, even sympathetic, when another person puts us at a disadvantage, as long as the only way they could have avoided doing so was by imposing a large cost on themselves.

From the perspective of rational actor theory, rejecting any offer greater than zero is not in our self-interest—it basically amounts to, as the old saying goes, cutting off our nose to spite our face. But this logic ignores the simple fact that we really do care about being treated unfairly. So much so, in fact, that we are willing to punish others for acting unfairly, even when it costs us something in return. Just as subjects were quick to punish those who acted unfairly in the ultimatum game, people are equally quick to punish others for unfair behavior in real-world situations as well. This willingness to punish, even at a cost to ourselves, can be very beneficial to a society in that it helps enforce cooperation (although the effects are complex, and not always positive, as we’ll see in chapter 8). And, as it turns out, it actually has a biological basis. In one study, Fehr’s group teamed up with neuroscientist Dominique de Quervain to try to “see” the effects of punishment at work in the brain.


pages: 898 words: 266,274

The Irrational Bundle by Dan Ariely

accounting loophole / creative accounting, air freight, Albert Einstein, Alvin Roth, assortative mating, banking crisis, Bernie Madoff, Black Swan, Broken windows theory, Burning Man, business process, cashless society, Cass Sunstein, clean water, cognitive dissonance, computer vision, corporate governance, credit crunch, Credit Default Swap, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, end world poverty, endowment effect, Exxon Valdez, first-price auction, Frederick Winslow Taylor, fudge factor, George Akerlof, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, IKEA effect, Jean Tirole, job satisfaction, Kenneth Arrow, knowledge economy, knowledge worker, lake wobegon effect, late fees, loss aversion, Murray Gell-Mann, new economy, Peter Singer: altruism, placebo effect, price anchoring, Richard Feynman, Richard Thaler, Saturday Night Live, Schrödinger's Cat, second-price auction, Shai Danziger, shareholder value, Silicon Valley, Skype, software as a service, Steve Jobs, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, ultimatum game, Upton Sinclair, Walter Mischel, young professional

It is another matter altogether to realize that these emotional influences can continue to affect us for a long, long time. The Ultimatum Game To test our emotional-cascade idea, Eduardo and I had to do three key things. First, we had to either irritate people or make them happy. This temporary emotional baggage would set the stage for the second part of our experiment, in which we would get our participants to make a decision while under the influence of that emotion. Then we would wait until their feelings subsided, get them to make some more decisions, and measure whether the earlier emotions had any long-lasting influence on their later choices. We got our participants to make decisions as part of an experimental setup that economists call the ultimatum game. In this game there are two players, the sender and the receiver. In most setups, the two players sit separately, and their identities are hidden from each other.

After all, we’ve all had experiences with unfair offers in the past, and we can imagine that we would feel insulted and say “Forget it, you #$%*&$#!” if someone were to suggest a $19:$1 split. This understanding of how unfair offers make people feel and behave is why most people in the ultimatum game offer splits that are closer to $12:$8 and why those splits are almost always accepted. I should note that there is one interesting exception to this general rule of caring about fairness. Economists and students taking economics classes are trained to expect people to behave rationally and selfishly. So when they play the ultimatum game, economic senders think that the right thing to do is to propose a $19:$1 split, and—since they are trained to think that acting rationally is the right thing to do—the economic recipients accept the offer. But when economists play with noneconomists, they’re deeply disappointed when their uneven offers are rejected.

., 187–88 hedonic treadmill and, 175 placing limits on, 186–87 reducing, 185–86 spacing of, 185, 186 contrafreeloading, 60–63 Jensen’s study of, 60–62, 63 standard economic view at odds with, 62–63 Converse, 95 cooking: children’s involvement in, 121 enjoyment factor and, 62n, 105–6 semi-preprepared food and, 85–88 CO2 emissions, 251–52 counting strategies, 282–83 Count of Monte Cristo, The (Dumas), 123 creation, pride of: ideas and, see Not-Invented-Here (NIH) bias self-made goods and, see IKEA effect creativity, bonuses and improvements in, 47–48 Csíkszentmihályi, Mihály, 49 cultures, organizational: acronyms and, 120 Not-Invented-Here bias and, 119–21 customer revenge, 131–51 against airlines, 142–43 apologies and, 149–51, 152 author’s experience with Audi customer service and, 131–36, 137, 147–49, 153–54 distinction between agents and principals and, 144–47 Farmer and Shane’s “Yours Is a Very Bad Hotel” and, 140–41, 146 fictional case study for Harvard Business Review on, 147–49 increase in, 143 Neistat brothers’ video on Apple’s customer service and, 141–42 passage of time and, 151 phone call interruption experiments on, 135–39, 145–46, 150–51 customization, 94–96 of cars, 88, 89, 94 effort expended in, 89, 95–96 overvaluation despite removing possibility of, 96 of shoes, 95, 96 D Dallaire, Roméo, 255 Darfur, 238, 253 Dart Ball game, 23, 34 Darwin, Charles, 157 dating, 191–235 market failures in, 213–15, 216–17, 220–21, 230–32, 233–35 playing hard to get and, 104 standard practice of, 224–25, 227–28 yentas (matchmakers) and, 213 see also assortative mating; online dating; speed dating decision making: author’s medical care and, 284–88 cooling off before, 257, 279 emotions and, 261–77 gender differences and, 274–76 irreversible decisions and, 285, 286 rationalization of choices in, 287 from rational perspective, 5–6 short-term, long-term decisions affected by, 264–65, 270–74, 276–77 stability of strategies for, 261–65; see also self-herding ultimatum game and, 265–70, 275–76 dentistry, adaptation to pain and, 161–62 design, taking people’s physical limitations into account in, 230–32 destroying work in front of workers, 74–76 Dichter, Ernest, 86 disease: adaptation to pain and, 165, 167 preventative health care and, 251, 256 “survivor” rhetoric and, 241–42 Disney, 154 distraction, performance-based incentives and, 30, 36 division of labor, 77–80 IT infrastructure and, 77, 79–80 Marx’s alienation notion and, 79 Smith’s observations on, 77–78 divorce, foreseeing outcome of, 173 Dodson, John, 18–20, 22, 31, 47 do-it-yourself projects, see IKEA effect Donath, Judith, 225 Dostoyevsky, Fyodor, 157 Doubletree Club, Houston, 140–41, 146 dreams, author’s self-image in, 182–83 DreamWorks SKG, 154 driving: momentary anger during, 261 safety precautions and, 6–7 texting during, 6, 7, 8 see also cars drop-in-the-bucket effect, 244–45, 252, 254–55 Dumas, Alexandre, 123 E Eastwick, Paul, 172–73 Edison, Thomas, 117–19, 122 effort: increase in value related to, 89, 90, 95–96, 105–6; see also IKEA effect joy derived from activity and, 71–72 meaningful work conditions and, 72 ownership of ideas and, 114–16 see also labor egg theory, 86–88 Eisner, Michael, 154 electric chair, 119 electricity, alternating current (AC) vs. direct current (DC), 117–19 emotional cascades, 265–78 gender differences and, 274–76 romantic relationships and, 277–78 ultimatum game and, 265–76 emotional priming: empathy for plight of others and, 246–48 ultimatum game and, 268–70 emotions, 43, 237–79 appeals to, willingness to help others and, 240–42, 248–50, 253–54, 256 decision making and, 261–77; see also decision making in past, humans’ poor memory of, 264 transience of, 257, 261, 270 see also empathy; negative feelings, acting on empathy: animals’ suffering and, 249, 252 apathy toward statistical victims and, 238–41, 242, 246, 247–49, 252–53 Baby Jessica saga and, 237–38 calculating vs. emotional priming and, 246–48 clear moral principles and, 255 closeness and, 243, 245, 254 drop-in-the-bucket effect and, 244–45, 252, 254–55 emotional appeals and, 240–42, 248–50, 253–54, 256 global warming and, 251–52 identifiable victim effect and, 239–42, 248, 256 overcoming barriers to, 252–56 rules to guide our behavior and, 254–55 thought experiment of drowning girl and, 242–43, 245 toward one person vs. many in need, 237–56 vividness and, 24, 243n, 244, 245 endowment effect, 285, 286 Enron, 216 evolution, mismatch between speed of technological development and, 8–9 experiments, 10–11, 288–95 business or public policy and, 292–94, 295 of Gideon, 288–89 medical practice and, 289–92 rational economists’ criticisms of, 49–51 see also specific topics Exxon Valdez oil spill, 249 F fairness, sense of: in chimpanzees, 127 decision making and, 266–67; see also ultimatum game gender differences and, 275–76 Fallows, James, 158 Farmer, Tom, 140–41, 146, 148–49 FedEx, 108–9 feedback, about work, 74–76 Feeks, John, 118–19 Fehr, Ernst, 125–26 financial incentives: meaning of labor and, 72–73, 76 see also bonuses financial markets, safety measures for, 7 financial meltdown of 2008, 7, 21, 216 chronology of events in, 129–30 desire for revenge in wake of, 128–31 lack of experimental approach to, 293 outraged public reaction to bailout in, 128–29, 130 Finkel, Eli, 172–73 First Knight, 50 fixation, pride in creation and ownership and, 89, 122 food: animals’ preference for working for, 59–63 semi-preprepared, 85–88 shortages of, identifiable victim effect and, 239–41 see also cooking Food and Drug Administration (FDA), 292 Ford, Henry, 78–79, 94 Forgea (white terrier), 249 Fox, Michael J., 254 “Fox and the Grapes, The” (Aesop), 198–99 Frank, Barney, 41 Frankl, Viktor, 45 free food, animals’ preference for working for food vs., 60–62 Frenk, Hanan, 161–65, 300 Friends, ultimatum game and, 269, 270–71, 272 frog experiment, 157–58 Frost, Jeana, 219–20, 229, 300 Fryer, Bronwyn, 148 furniture, do-it-yourself, 83–84, 96, 105, 106 future, foreseeing adaptation to changes in, 160, 171–74 G gardening: children growing food and, 121 enjoyment factor and, 105–6 gender differences: assortative mating and, 209, 211 decision making and, 274–76 pain threshold and tolerance and, 168–69 Gideon, 288–89 global warming, 158, 251–52 Gneezy, Ayelet, 135, 144–45, 150, 300–301 Gneezy, Uri, 21, 44, 301 Gore, Al, 158, 252 government policies, experimental approach to, 292–94, 295 H happiness: comparisons to other people and, 189 consumer purchases and, 175, 185–88 inaccurate predictions about, 170–71 return to baseline of, 170 transient vs. constant experiences and, 187–88 Harvard Business Review (HBR), 147–49 health care, see medical care hedonic adaptation, 160–84 to annoying experiences, 177–79, 180 author’s personal history and, 181–84, 189 blindness and, 172–74 breaking up experiences and, 177–81 changes in workers’ pay and, 169–70 comparisons to other people and, 189 consumer purchases and, 175, 185–88 extending pleasurable experiences and, 176–78, 179–81, 185, 186 in future, foreseeing of, 160, 171–74 happiness baseline and, 170 life-altering injuries and, 171–72, 174 moving to California and, 176 new houses and, 168–69 pain and, 160–67 romantic breakups and, 172–73 to transient vs. constant experiences, 187–88 using our understanding of, 176–81, 184–90 hedonic disruptions, 177–81 hedonic treadmill, 175 Heingartner, Alexander, 45–46 Henry, O., 98 herding, 262 see also self-herding Herman, Edward, 45–46 Hippocrates, 82 Hogerty, Megan, 81 homeostatic mechanisms, 81 Hong, James, 201, 203 HOT or NOT study, 201–5, 208 gender differences in, 209, 211 Meet Me feature and, 204–5, 208, 209 humor, sense of, 199, 200, 207, 208, 228 Hurricane Katrina, 250, 251 I ideas: attachment to, see Not-Invented-Here (NIH) bias idiosyncratic fit and, 111–12 identifiable victim effect, 239–42, 248, 256 American Cancer Society and, 241–42 identity, connection between work and, 53–55, 79 idiosyncratic fit, ideas and, 111–12 ignoring workers, 74–76 IKEA, 83–84, 106 IKEA effect, 83–106 author’s creations in rehabilitation center and, 100–101 completion of project and, 101–4, 105 do-it-yourself furniture and, 83–84, 96, 106 effort expended and, 89, 90, 95–96, 105–6 four principles in, 104–5 and lack of awareness of overvaluation, 99 Legos experiment and, 96, 97 Local Motors cars and, 88, 89 Not-Invented-Here (NIH) bias and, 109–10, 121 origami experiments and, 91–94, 97, 98–99, 102–4 parents’ overvaluation of their children and, 97–98 practical implications of, 121–22 relaxation notion and, 105–6 removal of individual customization and, 96 semi-preprepared food and, 85–88 shoe design and, 95, 96 immediate gratification, 5 Inconvenient Truth, An, 252 initiation into social groups, 89 injuries: association of pain with getting better after, 166–67 author’s dating prospects and, 191–96, 210–11 author’s decisions about his medical care and, 284–88 author’s personal history related to, 1–4, 13, 107, 160–62, 166–67, 181–84, 189, 191–96, 210–11, 281–88 battlefield vs. civilian, 167 foreseeing future after, 160 life-altering, adaptation to, 160, 171–72, 174 pain thresholds and tolerance related to severity of, 161–65 Institute for Evolutionary Anthropology, Leipzig, Germany, 126–27 insurance products, 233–34 interruptions: in pleasant vs. painful experiences, 177–81 TV commercials and, 181n see also phone call interruption experiments intuitions: bonuses and, 36–37 received medical wisdom and, 289–92 romantic, 172–73 testing of, 10n, 288–95 inverse-U relationship, defined, 19 iPods and iPhones, battery replacement in, 141–42 irrationality: summary of findings on, 288 upside as well as downside of, 11–12, 294 irreversible decisions, 285, 286 IT infrastructure, division and meaning of labor and, 77, 79–80 J Janoff-Bulman, Ronnie, 170 Jensen, Glen, 60–62, 63 Jensen, Keith, 127 Jewish tradition, 254–55 Johns Hopkins Bloomberg School of Public Health, Baltimore, 152 Joyless Economy, The (Scitovsky), 188 justice, see fairness, sense of K Kahneman, Danny, 32n, 175–76 Kamenica, Emir, 66, 301 Katzenberg, Jeffrey, 154 Kemmler, William, 119 kinship, empathy and, 243 Krishnamurti, Tamar, 172–73 Krzyzewski, Mike, 39 L labor: connection between identity and, 53–55, 79 contrafreeloading and, 60–63 economic model of, 55, 62–63, 105 financial incentives and, see bonuses meaning of, see meaning of labor overvaluation resulting from, see IKEA effect on projects without meaning, 56–57, 63–72 Labyrinth game, 23 Lee, Leonard, 132, 134, 197, 201–2, 301–2 Lee, Sandra, 87–88 leeches, medicinal use of, 290–91 Legos experiments: on IKEA effect, 96, 97 on reducing meaningfulness of work, 66–74, 77, 80 letter-pairs experiment, 74–76, 80 life-altering events, hedonic adaptation and, 170 Life as a House, ultimatum game and, 268, 269, 270, 272, 276 light, adaptation to changes in, 159 Local Motors, Inc., 88, 89 Loewenstein, George, 21, 44, 80–81, 172–73, 197, 201–2, 239–41, 246–48, 302 long-term objectives, short-term enjoyments vs., 4–5 loss aversion, 32–33, 285, 286 lottery winners, hedonic adaptation of, 170, 171 “Love the One You’re With,” 197, 211–12 M malaria, 250, 251 Man’s Search for Meaning (Frankl), 45 marketing, adaptation and, 158 market mechanisms, 215–16 dating and, 213–15, 216–17, 220–21, 230–32, 233–35 Marx, Karl, 79 massages, extending pleasure of, 179–80 matchmakers (yentas), 213 Mazar, Nina, 21, 30, 44, 302 McClure, Jessica (Baby Jessica), 237–38 meals, see cooking meaning of labor, 53–82 in acknowledged, ignored, and shredded conditions, 74–76 animals’ preference for working for food and, 59–63 blogging and, 65 division of labor and, 77–80 draining work of meaning and, 55–57, 63–77 financial incentives and, 72–73, 76 joy derived from activity and, 71–72 labor-identity connection and, 53–55, 79 Legos experiment and, 66–74, 76, 80 lessons for workplace on, 80–82 letter-pairs experiment and, 74–76, 80 “meaning” vs.


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Behave: The Biology of Humans at Our Best and Worst by Robert M. Sapolsky

autonomous vehicles, Bernie Madoff, biofilm, blood diamonds, British Empire, Broken windows theory, Brownian motion, car-free, clean water, cognitive dissonance, corporate personhood, corporate social responsibility, Daniel Kahneman / Amos Tversky, delayed gratification, desegregation, different worldview, double helix, Drosophila, Edward Snowden, en.wikipedia.org, epigenetics, Flynn Effect, framing effect, fudge factor, George Santayana, global pandemic, hiring and firing, illegal immigration, impulse control, income inequality, John von Neumann, Loma Prieta earthquake, long peace, longitudinal study, loss aversion, Mahatma Gandhi, meta analysis, meta-analysis, Mohammed Bouazizi, Monkeys Reject Unequal Pay, mouse model, mutually assured destruction, Nelson Mandela, Network effects, out of africa, Peter Singer: altruism, phenotype, placebo effect, publication bias, RAND corporation, risk tolerance, Rosa Parks, selective serotonin reuptake inhibitor (SSRI), self-driving car, Silicon Valley, social intelligence, Stanford marshmallow experiment, Stanford prison experiment, stem cell, Steven Pinker, strikebreaker, theory of mind, transatlantic slave trade, traveling salesman, trickle-down economics, twin studies, ultimatum game, Walter Mischel, wikimedia commons, zero-sum game

We don’t passively forget that something is scary. We actively learn that it isn’t anymore.* The amygdala also plays a logical role in social and emotional decision making. In the Ultimatum Game, an economic game involving two players, the first makes an offer as to how to divide a pot of money, which the other player either accepts or rejects.22 If the latter, neither gets anything. Research shows that rejecting an offer is an emotional decision, triggered by anger at a lousy offer and the desire to punish. The more the amygdala activation in the second player after an offer, the more likely the rejection. People with damaged amygdalae are atypically generous in the Ultimatum Game and don’t increase rejection rates if they start receiving unfair offers. Why? These individuals understand the rules and can give sound, strategic advice to other players.

., “Failure to Respond Autonomically to Anticipated Future Outcomes Following Damage to Prefrontal Cortex,” Cerebral Cortex 6 (1996): 215; C. Martin et al., “The Effects of Vagus Nerve Stimulation on Decision-Making,” Cortex 40 (2004): 605. 72. G. Bodenhausen et al., “Negative Affect and Social Judgment: The Differential Impact of Anger and Sadness,” Eur J Soc Psych 24 (1994): 45; A. Sanfey et al., “The Neural Basis of Economic Decision-Making in the Ultimatum Game,” Sci 300 (2003): 1755; K. Gospic et al., ”Limbic Justice: Amygdala Involvement in Immediate Rejections in the Ultimatum Game,” PLoS ONE 9 (2011): e1001054. 73. D. Wegner, “How to Think, Say, or Do Precisely the Worst Thing on Any Occasion,” Sci 325 (2009): 58. 74. R. Davidson and S. Begley, The Emotional Life of Your Brain (New York: Hudson Street Press, 2011); A. Tomarken and R. Davidson, “Frontal Brain Activation in Repressors and Nonrepressors,” J Abnormal Psych 103 (1994): 339. 75.

M. de Waal, “Evolution of Responses to (un)Fairness,” Sci 346 (2014): 1251776; S. F. Brosnan et al., “Mechanisms Underlying Responses to Inequitable Outcomes in Chimpanzees, Pan troglodytes,” Animal Behav 79 (2010): 1229; M. Wolkenten et al., “Inequity Responses of Monkeys Modified by Effort,” PNAS 104 (2007): 18854. 15. K. Jensen et al., “Chimpanzees Are Rational Maximizers in an Ultimatum Game,” Sci 318 (2007): 107; D. Proctor et al., “Chimpanzees Play the Ultimatum Game,” PNAS 110 (2013): 2070. 16. V. R. Lakshminarayanan and L. R. Santos, “Capuchin Monkeys Are Sensitive to Others’ Welfare,” Curr Biol 17 (2008): 21; J. M. Burkart et al., “Other-Regarding Preferences in a Non-human Primate: Common Marmosets Provision Food Altruistically,” PNAS 104 (2007): 19762; J. B. Silk et al., “Chimpanzees Are Indifferent to the Welfare of Unrelated Group Members,” Nat 437 (2005); 1357; K.


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Adaptive Markets: Financial Evolution at the Speed of Thought by Andrew W. Lo

"Robert Solow", Albert Einstein, Alfred Russel Wallace, algorithmic trading, Andrei Shleifer, Arthur Eddington, Asian financial crisis, asset allocation, asset-backed security, backtesting, bank run, barriers to entry, Berlin Wall, Bernie Madoff, bitcoin, Bonfire of the Vanities, bonus culture, break the buck, Brownian motion, business cycle, business process, butterfly effect, buy and hold, capital asset pricing model, Captain Sullenberger Hudson, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, commoditize, computerized trading, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Daniel Kahneman / Amos Tversky, delayed gratification, Diane Coyle, diversification, diversified portfolio, double helix, easy for humans, difficult for computers, Ernest Rutherford, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, Fall of the Berlin Wall, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, Fractional reserve banking, framing effect, Gordon Gekko, greed is good, Hans Rosling, Henri Poincaré, high net worth, housing crisis, incomplete markets, index fund, interest rate derivative, invention of the telegraph, Isaac Newton, James Watt: steam engine, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, Joseph Schumpeter, Kenneth Rogoff, London Interbank Offered Rate, Long Term Capital Management, longitudinal study, loss aversion, Louis Pasteur, mandelbrot fractal, margin call, Mark Zuckerberg, market fundamentalism, martingale, merger arbitrage, meta analysis, meta-analysis, Milgram experiment, money market fund, moral hazard, Myron Scholes, Nick Leeson, old-boy network, out of africa, p-value, paper trading, passive investing, Paul Lévy, Paul Samuelson, Ponzi scheme, predatory finance, prediction markets, price discovery process, profit maximization, profit motive, quantitative hedge fund, quantitative trading / quantitative finance, RAND corporation, random walk, randomized controlled trial, Renaissance Technologies, Richard Feynman, Richard Feynman: Challenger O-ring, risk tolerance, Robert Shiller, Robert Shiller, Sam Peltzman, Shai Danziger, short selling, sovereign wealth fund, Stanford marshmallow experiment, Stanford prison experiment, statistical arbitrage, Steven Pinker, stochastic process, stocks for the long run, survivorship bias, Thales and the olive presses, The Great Moderation, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Triangle Shirtwaist Factory, ultimatum game, Upton Sinclair, US Airways Flight 1549, Walter Mischel, Watson beat the top human players on Jeopardy!, WikiLeaks, Yogi Berra, zero-sum game

We’ll reject an offer of something over nothing if we believe the offer is unfair. When Alan Sanfey, James Rilling, and their group at Princeton looked at the Ultimatum Game in 2003 using the fMRI neuroimaging techniques described in chapter 3, they saw that unfair offers triggered both the anterior insula, which the brain uses to process feelings of pain and disgust, as well as the “rational” dorsolateral prefrontal cortex, associated with planning and executive function.6 Both the emotional brain and the rational brain activate when we’re faced with an unfair financial situation. How do chimpanzees behave when faced with the Ultimatum Game? At first glance, the Ultimatum Game looks too difficult for chimpanzees to play, but in 2013, Darby Proctor, Rebecca A. Williamson, and Sarah F. Brosnan at Georgia State University, together with the legendary primatologist Frans de Waal at Emory University, came up with a subtle way to get around the difficulty of chimpanzees understanding money.7 The experimenters trained chimpanzees to link tokens to different amounts of food (they used slices of banana), and had them choose which token they would prefer.

Is it moral to pursue an adversarial strategy? There’s a well-known thought experiment I run in some of my classes called the Ultimatum Game.5 There are two players—let’s call them Alice and Bob. Alice receives $100 from the house (this is why I run it as a thought experiment), but she has to come up with a mechanism for dividing up that $100 between her and Bob. If Bob accepts Alice’s offer, both of them get paid the agreed amounts, but if Bob rejects Alice’s offer, they both get nothing. The game is played only once; there aren’t any repeated iterations that might transmit information from player to player or create a role for reputation. When my MBA students play Alice in the Ultimatum Game, the majority of them divide the $100 fairly, a 50/50 split. Researchers have found that this is a typical result for players in the modern industrialized world.

When paired with a partner with no say in the amount—the literature calls this the Dictator Game—the chimpanzees naturally chose the most selfish outcome. But when paired with an active partner in the Ultimatum Game, the chimpanzees would typically choose the more equitable distribution. We’re even beginning to learn that certain chemicals modulate generosity in the brain. For example, the hormone testosterone is often associated with dominance-seeking behavior in a number of species, including Homo sapiens. Therefore, we might expect some correlation between testosterone levels and willingness to compromise. The behaviorial economist (and author of Mean Genes) Terry Burnham confirmed this intuition in experiments where male subjects were asked to play the Ultimatum Game. Burnham found that the subjects who rejected 338 • Chapter 10 lowball offers did have higher testosterone levels.8 Evidently, alpha males don’t settle.


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Dollars and Sense: How We Misthink Money and How to Spend Smarter by Dr. Dan Ariely, Jeff Kreisler

accounting loophole / creative accounting, Airbnb, Albert Einstein, bitcoin, Burning Man, collateralized debt obligation, Daniel Kahneman / Amos Tversky, delayed gratification, endowment effect, experimental economics, hedonic treadmill, IKEA effect, invisible hand, loss aversion, mental accounting, mobile money, placebo effect, price anchoring, Richard Thaler, sharing economy, Silicon Valley, Snapchat, Stanford marshmallow experiment, Steve Jobs, TaskRabbit, the payments system, Uber for X, ultimatum game, Walter Mischel, winner-take-all economy

Researchers found that unfair offers in the ultimatum game—like $1 out of $10—activate different regions of the brain than do fair ones—like $5 out of $10. Research shows that once our “unfair” regions are activated, we are more likely to reject unfair offers.1 In other words, our brains don’t like unfairness and this dislike makes us take action to express our displeasure. Stupid, crazy brains. We may not like them, but they are our brains. PLAYING WITH ECONOMISTS The exception to the rule that we reject unfair ultimatum game offers is that economists do not reject unfair offers. They recognize the rational response. Since this is clearly a passive-aggressive attempt to demonstrate how much smarter they are than the rest of us, if we ever play the ultimatum game with an economist, we should feel free to be as cruel and unfair as we want.

Still, we fret, roll our eyes, stomp our feet, kick the dirt, and threaten to take our ball and go home when we pay a high price for something that looks easy or takes little time. Why? Because we are little brats who believe that prices should be fair. We will refuse good value because we believe it is unfair. We punish unfairness, and often ourselves (witness James, our soaking-wet widget executive), in the process. There is a well-known experiment that shows the ways in which we punish unfairness. It’s called the ultimatum game. Despite the suspense movie sound of the name, it does not involve Jason Bourne. The basic setup involves two participants—a sender and a receiver. The two players sit in different rooms. They don’t know each other and will never meet this way. They can act in any way they want without fearing retaliation from the other person. The sender is given some money—say, $10. He or she then decides how much of that cash to give to the receiver, while keeping the rest for him- or herself.

If we step back and think rationally, logically, cold-blooded supercomputer-meets-Jason-Bourne-y about it, we’d conclude that the receiver should accept any amount from the sender that is above zero. Even a penny is something they’ve gotten just for showing up. It’s free money, and any sum should be better than getting nothing. If the world were super-rational, the sender would offer one penny and the receiver would accept it. Game over. But that’s not what real people do in the ultimatum game. Receivers routinely reject offers that they consider unfair. When the sender offers less than a third of the total amount, the receiver most often rejects the offer and they both go home with nothing. People actually refuse free money in order to punish someone—someone they don’t know and probably won’t deal with ever again—just for making an unfair offer. These results show that we can value a dollar at less than zero because of our sense of fairness.


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The Irrational Economist: Making Decisions in a Dangerous World by Erwann Michel-Kerjan, Paul Slovic

"Robert Solow", Andrei Shleifer, availability heuristic, bank run, Black Swan, business cycle, Cass Sunstein, clean water, cognitive dissonance, collateralized debt obligation, complexity theory, conceptual framework, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, Daniel Kahneman / Amos Tversky, endowment effect, experimental economics, financial innovation, Fractional reserve banking, George Akerlof, hindsight bias, incomplete markets, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, iterative process, Kenneth Arrow, Loma Prieta earthquake, London Interbank Offered Rate, market bubble, market clearing, money market fund, moral hazard, mortgage debt, Pareto efficiency, Paul Samuelson, placebo effect, price discrimination, price stability, RAND corporation, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Reagan, source of truth, statistical model, stochastic process, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, ultimatum game, University of East Anglia, urban planning, Vilfredo Pareto

Schelling, Thomas Schoemaker, Paul Schwartz, Anna Science (journal) Securities Security interdependent international national Sen, Amartya Sen, Sankar Sensitivity September 11th, 2001 government aid following impact of risk assessments following Shleifer, Andrei Shu Zukang Sichuan province, earthquake in Sierra Club Silent Spring (Carson) Simon, Herbert Skillful weighing Slovic, Paul Small Business Administration (SBA) Smart Choices (Keeney and Hammond) Smith, Adam Smith, Vernon Social sciences Social Security Social welfare Socrates Spetzler, Carl Stage 1 risks Stage 2 risks Stern, Nicholas Stern Review Stock markets Storms Strategic Decisions Group Strömberg, David Stroop tasks Subprime mortgage crisis “Subway” uncertainty Sunstein, Cass Superfund Superstition Supplemental Security Income Supply-shock story “Sure Thing Principle” (Savage) Sustainability Terrorism governmental response to mega- preventing Terrorism Risk Insurance Act (TRIA) Thaler, Richard Theory of Games. See also Game Theory; Ultimatum Game Thompson, Michael Thucydides Timing Toll collectors, algorithm for assigning Tradeoffs certainty and value Trope, Yaacov Tropical Storm Agnes Tsunamis Tunguska, asteroid explosion at Tversky, Amos Ultimatum Game (UG) (fig.). See also Game Theory; Theory of Games Uncertainty(fig.) assessing behavior and coconut general equilibrium under growth of handling insurance and market subway types of Underinsurance Unfair offers(fig.) Union Carbide plant United Nations World Economic and Social Survey 2008 Universal Declaration of Human Rights U.S.

Measuring what subjects are looking at on the computer screen is potentially a way for economists to distinguish between these two different interpretations. In fact, on about 10 percent of the trials, players did not even open up the third box to see how much was available. In a boundedly rational way, their lazy pattern of looking made some sense because only 8 percent of the games went into the third stage. We concluded that while fairness preferences might be part of the story (as the simpler ultimatum game strongly suggested), limited look-ahead was too. Such a clear conclusion could not be reached so quickly without knowing what subjects were looking at. Another thing researchers can do with attentional data is try to predict from what people look at what they are likely to do. We did this in the 2002 paper, which summarizes the results in a series of “icon graphs” and associated histograms showing the frequency of various offer amounts.

WHAT CAN WE LEARN FROM THE MARRIAGE OF ECONOMICS AND NEUROSCIENCE? Today, this multidisciplinary field—which brings together economics, neuroscience, psychology, philosophy, sociology, and physics—is offering new empirical and theoretical insights on how emotions and rationality interdependently sha(r)p(en) our decisions. Among the most striking examples are a couple of neuroscientific studies of a familiar experimental economic setting, the Ultimatum Game (UG). The first of these was conducted by scientists at Princeton University in 2003.8 Alan Sanfey, Jonathan Cohen, and colleagues used functional magnetic resonance imaging (fMRI)9 in order to estimate the brain activity that occurs when people decide to accept (or not) an unfair share of money in the UG.10 From a purely rational view, whether a proposition is unfair or not should not make any difference to their decision—they would get more money by accepting than by rejecting it.


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Competition Overdose: How Free Market Mythology Transformed Us From Citizen Kings to Market Servants by Maurice E. Stucke, Ariel Ezrachi

affirmative action, Airbnb, Albert Einstein, Andrei Shleifer, Bernie Sanders, Boeing 737 MAX, Cass Sunstein, choice architecture, cloud computing, commoditize, corporate governance, Corrections Corporation of America, Credit Default Swap, crony capitalism, delayed gratification, Donald Trump, en.wikipedia.org, George Akerlof, gig economy, Goldman Sachs: Vampire Squid, Google Chrome, greed is good, hedonic treadmill, income inequality, income per capita, information asymmetry, invisible hand, job satisfaction, labor-force participation, late fees, loss aversion, low skilled workers, Lyft, mandatory minimum, Mark Zuckerberg, market fundamentalism, mass incarceration, Menlo Park, meta analysis, meta-analysis, Milgram experiment, mortgage debt, Network effects, out of africa, payday loans, Ponzi scheme, precariat, price anchoring, price discrimination, profit maximization, profit motive, race to the bottom, Richard Thaler, ride hailing / ride sharing, Robert Bork, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Shoshana Zuboff, Silicon Valley, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Stanford prison experiment, Stephen Hawking, The Chicago School, The Market for Lemons, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Davenport, Thorstein Veblen, Tim Cook: Apple, too big to fail, transaction costs, Uber and Lyft, uber lyft, ultimatum game, Vanguard fund, winner-take-all economy

Moreover, about half the time recipients will reject low offers (generally less than 20 percent of the total amount available), even if it means they will get nothing at all.38 So if you offer $20 and try to keep $80 for yourself, the perception of unfairness and the desire to retaliate against that unfairness are likely to cause the other person to say no.39 The willingness of players to make a fair offer cannot be explained as the result of wanting to maintain their reputation or goodwill, since the Ultimatum Game and other iterations of it are often exercises in which you play anonymously (or only once so you don’t have to worry about playing again with the same person).40 Knowing this, even a savvy Chicago School economist would ditch the assumption of “cold” self-interest, and offer far more than the nominal, profit-maximizing amount of one penny. Now, let us turn to another recent experiment, in which the researchers used the Ultimatum Game (along with two other games, Public Goods and Dictator) to study fifteen small-scale economies in twelve countries on five continents.41 The groups studied were diverse—three foraging groups (East Africa’s Hadza, Papua New Guinea’s Au and Gnau, and Indonesia’s Lamalera), six slash-and-burn horticulturists (the Aché, Machiguenga, Quichua, and Achuar of South America and East Africa’s Tsimané and Orma), four nomadic herding groups (the Torguud, Mongols, and Kazakhs of Central Asia, and East Africa’s Sangu), and two sedentary, small-scale agricultural societies (South America’s Mapuche and Africa’s Zimbabwe farmers).

The players who shared and cooperated the most in the experimental games were those whose societies had higher levels of market integration (that is, they were more dependent on market exchange in daily life) and offered higher payoffs for such cooperation. Among the whale-hunting Lamalera, for example, more than half (63 percent of the proposers in the Ultimatum Game) divided the pie equally or even more generously (the mean offer was 58 percent). In real life, a large catch, always the product of cooperation among many individual whalers, is meticulously divided into predesignated parts and carefully distributed among the community members. In contrast, the Hadza made low offers and had high rejection rates in the Ultimatum Game. Although these small-scale foragers do share meat, the result reflects the everyday tendency of the Hadza hunters to try to hide their catch from the group. In general, the study reveals that, contrary to the Chicago School, most people are not inherently selfish.

To measure the individuals’ propensities to fairness and their willingness to punish unfairness, they again used the Ultimatum Game (along with two other games). The stakes were again one day’s local wages. The study found a positive correlation between fairness and degree of market integration as well as a positive correlation between participation in Christianity and Islam and the amounts offered in the behavioral experiments. Taken together, the data indicate that in going from a fully subsistence-based society with a local religion to a fully market-incorporated society with many Christians or Muslims, one would see a significant jump in the amount offered in the Ultimatum Game (about 20 percentage points) and other two games. As the authors conclude, “These findings indicate that people living in small communities lacking market integration or world religions—absences that likely characterized all societies until the Holocene—display relatively little concern with fairness or punishing unfairness in transactions involving strangers or anonymous others.”


Blueprint: The Evolutionary Origins of a Good Society by Nicholas A. Christakis

agricultural Revolution, Alfred Russel Wallace, Amazon Mechanical Turk, assortative mating, Cass Sunstein, crowdsourcing, David Attenborough, different worldview, disruptive innovation, double helix, epigenetics, experimental economics, experimental subject, invention of agriculture, invention of gunpowder, invention of writing, iterative process, job satisfaction, Joi Ito, joint-stock company, land tenure, Laplace demon, longitudinal study, Mahatma Gandhi, Marc Andreessen, means of production, mental accounting, meta analysis, meta-analysis, microbiome, out of africa, phenotype, Pierre-Simon Laplace, placebo effect, race to the bottom, Ralph Waldo Emerson, replication crisis, Rubik’s Cube, Silicon Valley, social intelligence, social web, stem cell, Steven Pinker, the scientific method, theory of mind, twin studies, ultimatum game, zero-sum game

In contrast to the ultimatum game, however, the dictator game allows researchers to tell whether proposers are making offers out of a sense of fairness or a fear of rejection, since the possibility of rejection has been removed. Classic economic theory cannot explain any of the behaviors observed in these games. If people are rational and selfish, then the proposer in the ultimatum or dictator game should offer the least amount possible, and the decider in the ultimatum game should accept any nonzero amount. Some money—even a penny—must be better than none. If self-interest were the only factor in how humans chose to play the dictator game, then the dictator would choose to donate none of the money. But everyone knows that this is not what actually happens. Moreover, in the ultimatum game, the receivers will forgo a reward if they are upset about being ill-treated.

Americans in rural Missouri were more generous, offering about 50 percent.85 The scientists also evaluated the cultural and ecological factors that might explain this cross-cultural variation. The overarching finding was that, while people were not purely selfish in any society, there was meaningful variation across societies, and a lot of that variation had to do with how market-oriented the society was and how important cooperation with non-kin was to subsistence (both of which fostered generosity). Results were similar in the ultimatum game. Whereas offers in the ultimatum game in college-student samples in the industrialized world typically ranged from 42 to 48 percent of the pot, in the cross-cultural sample the range was from 25 to 57 percent, on average. The fraction of rejected offers also varied. For instance, among Kazakh pastoralists, there were no rejections once the amount offered surpassed 10 percent of the windfall, but among the Aché horticulturalists of Paraguay, offers had to be at least 51 percent of the windfall before none were rejected.

Schwarze, “An Experimental Analysis of Ultimatum Bargaining,” Journal of Economic Behavior and Organization 3 (1982): 367–388; M. A. Nowak, K. M. Page, and K. Sigmund, “Fairness Versus Reason in the Ultimatum Game,” Science 289 (2000): 1773–1775. 82. Still another variant is the trust game. Here player 1 decides how much to give to player 2, and the researcher triples that amount. Then player 2 gets to decide how much money to give back to player 1. Player 1 must trust player 2 if giving a lot, and player 2 can be seen as very trustworthy if he gives a lot back to player 1. 83. Henrich et al., “Costly Punishment.” 84. J. Henrich, “Does Culture Matter in Economic Behavior? Ultimatum Game Bargaining Among the Machiguenga of the Peruvian Amazon,” American Economic Review 90 (2000): 973–979. 85. Henrich et al., “Costly Punishment.” 86. J.


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Willful: How We Choose What We Do by Richard Robb

activist fund / activist shareholder / activist investor, Alvin Roth, Asian financial crisis, asset-backed security, Bernie Madoff, capital asset pricing model, cognitive bias, collapse of Lehman Brothers, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, delayed gratification, diversification, diversified portfolio, effective altruism, endowment effect, Eratosthenes, experimental subject, family office, George Akerlof, index fund, information asymmetry, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, loss aversion, market bubble, market clearing, money market fund, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, principal–agent problem, profit maximization, profit motive, Richard Thaler, Silicon Valley, sovereign wealth fund, survivorship bias, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, ultimatum game

When considering the right course of action, the depraved hardly care at all, the majority sometimes give way to expedience (placing a price on violating a principle, but a small one), and the most upright place a high price on rule breaking or reject expedience altogether. If we accept that people prefer to abide by manners and principles when it doesn’t cost them too much, we can interpret behavior in experiments like the “ultimatum game” as purposeful. This game is played by two anonymous people. The “allocator” proposes how to split a fixed pot, say ten dollars, between himself and the “receiver.” The receiver can either accept or reject her share. If she accepts, she gets to keep it. If she rejects, neither the receiver nor the allocator gets anything. If both players in a single-round game care only about money and trust the rules, the allocator should propose $9.99 for himself and $0.01 for the receiver.

The data show that most allocators in developed countries propose roughly even splits. In a carefully designed study, researchers found that splits cluster around 50/50 in Ljubljana and Pittsburgh and around 60/40 in favor of the allocator in Tokyo and Jerusalem. Low offers tended to be rejected in all four cities, suggesting that receivers trade financial gain for a chance to punish flagrant inequality.2 The cost of conforming to social norms in most of the ultimatum game literature is fairly low—a few dollars here or there. But an experiment conducted in poor villages in India with pots of up to 160 days’ wages found that higher stakes lead to more lopsided splits in favor of the allocator and less frequent rejections: as the price (to the allocator) of fair play and (to the receiver) of punishing unfairness went up, players tended to prioritize wealth maximization.3 Care Altruism Bona fide care for someone else’s well-being results in utility functions that are, in economics jargon, “interlocking.”

The study of economics, which is now widespread even in high schools, transmits the alienation that comes from seeing the world in terms of abstract agents who calculate on behalf of potential selves. Economics students learn to think of themselves and others as agents that rationally optimize fixed preferences subject to constraints. By studying game theory, they come to view their opponents as agents seeking their own advantage and to understand that their opponents see them the same way. Studies have shown that those who study economics are less cooperative in games like the ultimatum game, but that’s another point altogether.8 Whether or not they make students selfish, such habits of thought are clearly conducive to a mechanistic understanding of life. Knowledge becomes nothing more than an instrument for maneuvering through the world. The reduction of all motives to a single abstraction takes us as far as possible from the concrete, unique individual. Rational choice economics can untether us from life as it is lived.


pages: 327 words: 103,336

Everything Is Obvious: *Once You Know the Answer by Duncan J. Watts

active measures, affirmative action, Albert Einstein, Amazon Mechanical Turk, Black Swan, business cycle, butterfly effect, Carmen Reinhart, Cass Sunstein, clockwork universe, cognitive dissonance, coherent worldview, collapse of Lehman Brothers, complexity theory, correlation does not imply causation, crowdsourcing, death of newspapers, discovery of DNA, East Village, easy for humans, difficult for computers, edge city, en.wikipedia.org, Erik Brynjolfsson, framing effect, Geoffrey West, Santa Fe Institute, George Santayana, happiness index / gross national happiness, high batting average, hindsight bias, illegal immigration, industrial cluster, interest rate swap, invention of the printing press, invention of the telescope, invisible hand, Isaac Newton, Jane Jacobs, Jeff Bezos, Joseph Schumpeter, Kenneth Rogoff, lake wobegon effect, Laplace demon, Long Term Capital Management, loss aversion, medical malpractice, meta analysis, meta-analysis, Milgram experiment, natural language processing, Netflix Prize, Network effects, oil shock, packet switching, pattern recognition, performance metric, phenotype, Pierre-Simon Laplace, planetary scale, prediction markets, pre–internet, RAND corporation, random walk, RFID, school choice, Silicon Valley, social intelligence, statistical model, Steve Ballmer, Steve Jobs, Steve Wozniak, supply-chain management, The Death and Life of Great American Cities, the scientific method, The Wisdom of Crowds, too big to fail, Toyota Production System, ultimatum game, urban planning, Vincenzo Peruggia: Mona Lisa, Watson beat the top human players on Jeopardy!, X Prize

As it turns out, the Au and Gnau tribes had long-established customs of gift exchange, according to which receiving a gift obligates the receiver to reciprocate at some point in the future. Because there was no equivalent of the ultimatum game in the Au or Gnau societies, they simply “mapped” the unfamiliar interaction onto the most similar social exchange they could think of—which happened to be gift exchange—and responded accordingly. Thus what might have seemed like free money to a Western participant looked to an Au or Gnau participant very much like an unwanted obligation. The Machiguenga, by contrast, live in a society in which the only relationship bonds that carry any expectation of loyalty are with immediate family members. When playing the ultimatum game with a stranger, therefore, Machiguenga participants—again mapping the unfamiliar onto the familiar—saw little obligation to make fair offers, and experienced very little of the resentment that would well up in a Western player upon being presented with a split that was patently unequal.

It should also be noted, however, that attempts to formalize this backup system, most notably in artificial intelligence research, have so far been unsuccessful (Dennett 1984); thus, however it works, it does not resemble the logical structure of science and mathematics. 8. See Minsky (2006) for a discussion of common sense and artificial intelligence. 9. For a description of the cross-cultural Ultimatum game study, see Henrich et al. (2001). For a review of Ultimatum game results in industrial countries, see Camerer, Loewenstein, and Rabin (2003). 10. See Collins (2007). Another consequence of the culturally embedded nature of commonsense knowledge is that what it treats as “facts”—self-evident, unadorned descriptions of an objective reality—often turn out to be value judgments that depend on other seemingly unrelated features of the socio-cultural landscape.

Bewildered and overwhelmed, most of them eventually left. NOT COMMON AT ALL As remarkable as it is, common sense exhibits some mysterious quirks, one of the most striking of which is how much it varies over time, and across cultures. Several years ago, for example, an enterprising group of economists and anthropologists set out to test how different cultures play a particular kind of game, called an ultimatum game. The game goes something like this: First, pick two people and give one of them $100. That person then has to propose a split of the money between himself and the other player, ranging from offering them the whole amount to nothing at all. The other player then gets to accept the deal or reject it. If the second player accepts the deal, they get what they were offered and both players go on their merry way.


pages: 310 words: 82,592

Never Split the Difference: Negotiating as if Your Life Depended on It by Chris Voss, Tahl Raz

banking crisis, Black Swan, clean water, cognitive bias, Daniel Kahneman / Amos Tversky, Donald Trump, framing effect, friendly fire, iterative process, loss aversion, market fundamentalism, price anchoring, telemarketer, ultimatum game, uranium enrichment

What’s more important is engaging in the process and having a feel for how long that will take. You may see that you have more to accomplish than time will actually allow before the clock runs out. NO SUCH THING AS FAIR In the third week of my negotiations class, we play my favorite type of game, that is, the kind that shows my students how much they don’t understand themselves (I know—I’m cruel). It’s called the Ultimatum Game, and it goes like this: After the students split into pairs of a “proposer” and an “accepter,” I give each proposer $10. The proposer then has to offer the accepter a round number of dollars. If the accepter agrees he or she receives what’s been offered and the proposer gets the rest. If the accepter refuses the offer, though, they both get nothing and the $10 goes back to me. Whether they “win” and keep the money or “lose” and have to give it back is irrelevant (except to my wallet).

A decade of brain-imaging studies has shown that human neural activity, particularly in the emotion-regulating insular cortex, reflects the degree of unfairness in social interactions. Even nonhuman primates are hardwired to reject unfairness. In one famous study, two capuchin monkeys were set to perform the same task, but one was rewarded with sweet grapes while the other received cucumbers. In response to such blatant unfairness, the cucumber-fed monkey literally went bananas. In the Ultimatum Game, years of experience has shown me that most accepters will invariably reject any offer that is less than half of the proposer’s money. Once you get to a quarter of the proposer’s money you can forget it and the accepters are insulted. Most people make an irrational choice to let the dollar slip through their fingers rather than to accept a derisory offer, because the negative emotional value of unfairness outweighs the positive rational value of the money.

This irrational reaction to unfairness extends all the way to serious economic deals. Remember Robin Williams’s great work as the voice of the genie in Disney’s Aladdin? Because he wanted to leave something wonderful behind for his kids, he said, he did the voice for a cut-rate fee of $75,000, far below his usual $8 million payday. But then something happened: the movie became a huge hit, raking in $504 million. And Williams went ballistic. Now look at this with the Ultimatum Game in mind. Williams wasn’t angry because of the money; it was the perceived unfairness that pissed him off. He didn’t complain about his contract until Aladdin became a blockbuster, and then he and his agent went loud and long about how they got ripped off. Lucky for Williams, Disney wanted to keep its star happy. After initially pointing out the obvious—that he’d happily signed the deal—Disney made the dramatic gesture of sending the star a Picasso painting worth a reported $1 million.


pages: 309 words: 86,909

The Spirit Level: Why Greater Equality Makes Societies Stronger by Richard Wilkinson, Kate Pickett

basic income, Berlin Wall, clean water, Diane Coyle, epigenetics, experimental economics, experimental subject, Fall of the Berlin Wall, full employment, germ theory of disease, Gini coefficient, God and Mammon, impulse control, income inequality, Intergovernmental Panel on Climate Change (IPCC), knowledge economy, labor-force participation, land reform, longitudinal study, Louis Pasteur, meta analysis, meta-analysis, Milgram experiment, moral panic, offshore financial centre, phenotype, plutocrats, Plutocrats, profit maximization, profit motive, Ralph Waldo Emerson, statistical model, The Chicago School, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, upwardly mobile, World Values Survey, zero-sum game

The human desire to punish even at some personal cost has been called ‘altruistic punishment’, and it plays an important role in reinforcing co-operative behaviour and preventing people freeloading. Although the studies of how people played the ultimatum game were not concerned with the levels of inequality in each society, they are, nevertheless, about how equally or unequally people choose to divide money between themselves and someone else. They are concerned with what people feel is a proper way to treat others (even when there is no direct contact between them and they bear the cost of any generosity). The egalitarian preferences people reveal in the ultimatum game seem to fly in the face of the actual inequalities in our societies. CHIMPS AND BONOBOS Some non-human primates are much more hierarchical than others. Looking at their different social systems, it often seems as if the amount of conflict, the quality of social relations and the relationship between the sexes are functions of how hierarchical they are.

These patterns demonstrate the fundamental truth: systems of material or economic relations are systems of social relations. ECONOMIC EXPERIMENTS Economic theory has traditionally worked on the assumption that human behaviour could be explained largely in terms of an inherent tendency to maximize material self-interest. But a series of experiments using economic games have now shown how far from the truth this is. In the ‘ultimatum game’, volunteers are randomly paired but remain anonymous to each other and do not meet. A known sum of money is given to the ‘proposer’ who then divides it as he or she pleases with the ‘responder’. All the responders do is merely accept or reject the offer. If rejected, neither partner gets anything, but if it is accepted, they each keep the shares of money offered. They play this game only once, so there is no point in rejecting a small offer to try to force the proposer to be more generous next time – they know there isn’t going to be a next time.

When we talk about ‘hurt feelings’ or a ‘broken heart’ we recognize the connection between physical pain and the social pain caused by the breaking of close social bonds, by exclusion and ostracism. Evolutionary psychologists have shown that the tendency to ostracize people who do not co-operate, and to exclude them from the shared proceeds of co-operation, is a powerful way of maintaining high standards of co-operation.343 And, just as the ultimatum game showed that people were willing to punish a mean allocator by rejecting – at some cost to themselves – allocations that seemed unfair, so we appear to have a desire to exclude people who do not co-operate. Social pain is of course central to rejection and is the opposite of the pleasures – discussed earlier – of being valued or of the sense of self-realization which can come from others’ appreciation of what we have done for them.


pages: 270 words: 79,180

The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit by Marina Krakovsky

Affordable Care Act / Obamacare, Airbnb, Al Roth, Ben Horowitz, Black Swan, buy low sell high, Chuck Templeton: OpenTable:, Credit Default Swap, cross-subsidies, crowdsourcing, disintermediation, diversified portfolio, experimental economics, George Akerlof, Goldman Sachs: Vampire Squid, income inequality, index fund, information asymmetry, Jean Tirole, Joan Didion, Kenneth Arrow, Lean Startup, Lyft, Marc Andreessen, Mark Zuckerberg, market microstructure, Martin Wolf, McMansion, Menlo Park, Metcalfe’s law, moral hazard, multi-sided market, Network effects, patent troll, Paul Graham, Peter Thiel, pez dispenser, ride hailing / ride sharing, Robert Metcalfe, Sand Hill Road, sharing economy, Silicon Valley, social graph, supply-chain management, TaskRabbit, The Market for Lemons, too big to fail, trade route, transaction costs, two-sided market, Uber for X, uber lyft, ultimatum game, Y Combinator

In fact, developing a reputation as a badass middleman can pay off, as suggested by an interesting series of experiments by the economists Chaim Fershtman and Uri Gneezy.14 The economists had participants play the Ultimatum Game, a game similar to the Dictator Game, except instead of one player simply giving a share to another, the first player makes an offer that the second player can reject. If that player rejects the offer, neither player gets anything. In the middleman version of the game, Fershtman and Gneezy introduced a third player whose role was to make an offer on the first player’s behalf. Just as in the Dictator Games with middlemen, using a third party to make offers reduced the rate at which people reject tough offers. For example, in the standard, two-player Ultimatum Game, offers of a 20 percent share or a 30 percent share tend to get rejected; these offers just don’t seem as fair as offers of 40 or 50 percent, so recipients would rather get nothing themselves than let the proposer get the lion’s share.

For example, in the standard, two-player Ultimatum Game, offers of a 20 percent share or a 30 percent share tend to get rejected; these offers just don’t seem as fair as offers of 40 or 50 percent, so recipients would rather get nothing themselves than let the proposer get the lion’s share. In a one-shot game this response is irrational—like cutting your nose to spite your face—because there’s no chance for the responder to reap any material rewards from teaching the proposer a lesson. Yet, that’s how most respondents in dozens of Ultimatum Game experiments behave. When you bring in a middleman, however, the results change dramatically, Fershtman and Gneezy found. In one experiment, they set up the game such that the middleman got a reward for a proposal that got accepted and no reward for a rejected proposal. When respondents knew that this was the deal, Proposers made tougher offers (through the middleman), and Respondents were more willing to accept these tough offers.

., 175–6 Crabtree, Michael, 179–80 Craigslist, 30–5, 37, 44–6, 65, 89, 171 decision simplicity, 169 Dell, Michael, 195–7 Dictator Game, 181–2 Direct from Dell (Dell), 195 Disney, 140 Dropbox, 18–20 Eachnet, 85 eBay Certifiers and, 58–62, 134, 164 Concierges and, 169 Eachnet and, 85, 102 Enforcers and, 84–5, 91 feedback and, 84–5, 89, 134 middlemen and, 3–4, 7 reputation and, 62, 67, 91 Eberlijn, Nina, 148–51 Edmunds.com, 165 Einstein, Albert, 127 Elberse, Anita, 135 Enforcers clients and, 107–9 explained, 7 knowing the workers, 75–7 need for, 73–5 playing watchdog, 77–8 punishment and, 92–7 reputation and, 85–6 restaurant business and, 78–84 role, 73 setting shared standards, 101–7 threat of consequences and, 86–8 trading in private information, 97–100 weak vs. strong, 88–92 Enron, 41 Expedia, 145 experiments Dictator Game, 181–2 Investment Game, 86–8, 92–4, 101–5 “Letter E” experiment, 131 networking and, 21 reputation and, 62 Ultimatum Game, 183–4 watchdogs and, 77–8 external risk, 111, 120, 123, 125–8, 142 see also risk Facebook, 4, 20, 22–3, 36, 80, 128–9, 137, 175 farmers’ markets, 66 Feller, William, 142 Fernandez-Mateo, Isabel, 98–100 Fershtman, Chaim, 183–4 Finlay, William, 175–6 Fischbacher, Urs, 181 Flash Boys (Lewis), 112 Floodgate, 5, 124–5, 127, 132 Free (Anderson), 39 Friendster, 36 Galinsky, Adam, 131 gallerists see art gallerists Gambetta, Diego, 74 Game-Changer (McAdams), 90 Garden, Sara, 193–4 Gates, Bill, 3 General Electric, 8 Give and Take (Grant), 41 Gneezy, Uri, 183–4 Goldberg, Bryan, 179 Goldman, Eric, 91 Goldman Sachs, 10 Google, 21, 128, 156, 175 Gottlieb, Robert, 69–70 Graham, Paul, 125 Granovetter, Mark, 24, 27, 42 Grant, Adam, 41 Green, Michael, 177 Greylock, 125 Grosvenor, Deborah, 68–70 Groupon, 44 GrubHub, 38, 40 Hall, Sarah, 146 Harley-Davidson, 137 Hawkison, Paul, 53–4, 71 headhunters, 2, 7, 61, 66, 175–6, 180 see also Insulators Hewlett-Packard, 196 hidden action, 74, 104 hidden information, 66, 73–4 Hoffman, Reid, 27 HomeAway, 90–1 Horejs, Jason, 113–17, 135, 198 Houston, Drew, 18 Hunt for Red October, The (Clancy), 68 Insulators agents and, 178–80 black markets and, 174–5 duty and, 190–3 example, 173–4 explained, 7 need for, 193–4 niceness and, 185–90 recruiting and, 175–8, 180–2 role, 173 toughness and, 182–5 insurance Bridges and, 30–1 Concierges and, 172 Insulators and, 188 “Market for Lemons” and, 65 middlemen and, 2 Risk Bearers and, 111–14, 121–2, 138–9 internal risk, 123, 126 see also risk Investment Game, 86–8, 92, 94, 101–3, 105 iSoldIt, 3, 59 J.


pages: 387 words: 110,820

Cheap: The High Cost of Discount Culture by Ellen Ruppel Shell

barriers to entry, Berlin Wall, big-box store, business cycle, cognitive dissonance, computer age, creative destruction, Daniel Kahneman / Amos Tversky, delayed gratification, deskilling, Donald Trump, Edward Glaeser, fear of failure, Ford paid five dollars a day, Frederick Winslow Taylor, George Akerlof, global supply chain, global village, Howard Zinn, income inequality, interchangeable parts, inventory management, invisible hand, James Watt: steam engine, Joseph Schumpeter, Just-in-time delivery, knowledge economy, loss aversion, market design, means of production, mental accounting, Monkeys Reject Unequal Pay, Pearl River Delta, Ponzi scheme, price anchoring, price discrimination, race to the bottom, Richard Thaler, Ronald Reagan, side project, Steve Jobs, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas L Friedman, trade liberalization, traveling salesman, ultimatum game, Victor Gruen, washing machines reduced drudgery, working poor, yield management, zero-sum game

A cucumber may not be as good as a grape, but it is edible, so tossing out chunks of the stuff appears self defeating and irrational. This behavior is consistent with the way monkeys and humans deal with what we perceive to be unfairness. At least some monkeys prefer nothing to less than the next monkey. The Ultimatum Game suggests that the same is often true for humans. Mathematician and evolutionary biologist Martin Nowak, now director of the Program for Evolutionary Dynamics at Harvard University, has studied the evolutionary underpinnings of fairness. Nowak designed a virtual version of the Ultimatum Game in which players who collected the most money were also the fastest to reproduce. (One of the central tenets of evolutionary theory is that the fitter one is, the more likely one is to pass on one’s genes to the next generation.) Under this scenario, players who accepted any fraction of the total offered by the first player—even if it were far less than half—ultimately won more money, had more offspring, and were thereby “fitter” by natural selection standards.

Thaler proposed an alternative descriptive theory built on Kahneman and Tversky’s work, making the case that price was not merely a number but a relationship between buyer and seller in which context is extremely important. In a series of influential papers he described a variety of apparently irrational behaviors that humans engage in when making financial transactions. A common theme in what Thaler called these “anomalies” was the resistance to deal rationally with ambiguity. Humans simply cannot cope with too many unknowns. Consider the Ultimatum Game, first described by three German economists in 1982. The game is between two players who interact only once, so reciprocation—or “payback”—is not at stake. The first player is given a sum of money—for simplicity let’s call it $10—and asked to divide it between himself and the other player. He can divvy it up any way he chooses, but if the second player rejects the division, neither player gets anything.

Marketing Letters 16, nos. 3/4 (2005): 347-60. 63 the distance estimated by the students: Plenary lecture at the annual meeting of the American Association for the Advancement of Science, February 15, 2008, in Boston. 64 “for a new field of research”: As announced in the press release from the Royal Swedish Academy of Science, October 9, 2002, available at http://nobelprize. org/nobel__prizes/economics/laureates/2002/press.html. 65 when making financial transactions: Thaler compressed and compiled many of these cases into a book. See Richard Thaler, The Winner’s Cure: Paradoxes and Anomalies of Economic Life (New York: The Free Press, 1992). My description of the Ultimatum Game was informed by Thaler’s chapter on the subject (pp. 21-36) and also by conversations with Dr. Patrick Kaufman, chairman of marketing at Boston University School of Management. 66 Emotion, Reason, and the Human Brain: Antonio R. Damasio, Descartes’ Error: Emotion, Reason, and the Human Brain (New York: Harper Perennial, 1995). 66 true not only for humans: There is a rich scientific literature giving evidence that humans are biologically programmed or “hardwired” to be fair and to demand fairness in others.


pages: 339 words: 105,938

The Skeptical Economist: Revealing the Ethics Inside Economics by Jonathan Aldred

airport security, Berlin Wall, carbon footprint, citizen journalism, clean water, cognitive dissonance, congestion charging, correlation does not imply causation, Diane Coyle, endogenous growth, experimental subject, Fall of the Berlin Wall, first-past-the-post, framing effect, greed is good, happiness index / gross national happiness, hedonic treadmill, Intergovernmental Panel on Climate Change (IPCC), invisible hand, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, labour market flexibility, laissez-faire capitalism, libertarian paternalism, longitudinal study, new economy, Pareto efficiency, pension reform, positional goods, Ralph Waldo Emerson, RAND corporation, risk tolerance, school choice, spectrum auction, Thomas Bayes, trade liberalization, ultimatum game

A more promising recent attempt to resolve the problem has focused on observing behaviour in controlled laboratory conditions rather than the messy real world. If there is one piece of evidence which has begun to persuade economists that we sometimes act truly unselfishly, at immediate cost to ourselves even when there are no hidden or future benefits, it is a laboratory experiment, the ultimatum game. The Ultimatum Game There are two players, a proposer and a responder who have to agree on how to share a fixed sum of money. The proposer makes a proposal to the responder on how the money should be split between them. The responder is only allowed to accept or refuse the proposal; he cannot make a counter-offer: If the responder accepts, the money is split as proposed, but if the responder refuses, then both players receive nothing.

Most players refer to fairness in explaining their actions. These results are indisputable: they have been observed over hundreds of trials in various cultures, with large and small stakes of money, where the researcher cannot observe the players’ choices, and most importantly, where the players are strangers who play the game just once and never meet.42 The existence of unselfish acts in laboratory experiments such as the Ultimatum Game has led many more economists to accept the possibility of unselfish behaviour in the outside world too. But it remains just a possibility, because they struggle to see how people’s motives can be determined outside the laboratory. So the conventional wisdom remains the first strategy mentioned above, where every apparently unselfish act is argued to involve the pursuit of hidden or future benefits.

In sum, expecting selfishness in others, I become more selfish. More obviously, the Homo economicus doctrine actively recommends selfishness. As we have seen, pursuing self-interest is always seen as rational. Acting otherwise is not. But does anyone really believe this? Well, economics students seem to — studying economics makes you more selfish. Survey evidence on charitable giving, and laboratory studies of behaviour in games such as the Ultimatum Game, both show economics students becoming more selfish over the duration of their courses.56 If this kind of intensive exposure to the Homo economicus doctrine increases selfishness, there may well be a similar, albeit milder, effect on people with more limited exposure to the doctrine. Does reading The Economist or Freakonomics make you more selfish? Although exposure to the doctrine from just watching television news is much more limited, the effect may be exaggerated because by that stage the doctrine is caricatured, becoming simply ‘Greed is Good’.57 Unfortunately, in the absence of research studying the impact of the doctrine as presented in the mainstream media, these questions cannot be answered directly.


pages: 295 words: 66,824

A Mathematician Plays the Stock Market by John Allen Paulos

Benoit Mandelbrot, Black-Scholes formula, Brownian motion, business climate, business cycle, butter production in bangladesh, butterfly effect, capital asset pricing model, correlation coefficient, correlation does not imply causation, Daniel Kahneman / Amos Tversky, diversified portfolio, dogs of the Dow, Donald Trump, double entry bookkeeping, Elliott wave, endowment effect, Erdős number, Eugene Fama: efficient market hypothesis, four colour theorem, George Gilder, global village, greed is good, index fund, intangible asset, invisible hand, Isaac Newton, John Nash: game theory, Long Term Capital Management, loss aversion, Louis Bachelier, mandelbrot fractal, margin call, mental accounting, Myron Scholes, Nash equilibrium, Network effects, passive investing, Paul Erdős, Paul Samuelson, Ponzi scheme, price anchoring, Ralph Nelson Elliott, random walk, Richard Thaler, Robert Shiller, Robert Shiller, short selling, six sigma, Stephen Hawking, stocks for the long run, survivorship bias, transaction costs, ultimatum game, Vanguard fund, Yogi Berra

Although my father was a salesman, he always seemed less intent on making a sale than on schmoozing with his customers, telling jokes, writing poetry (not all of it doggerel), and taking innumerable coffee breaks. Everyone can tell such stories, and you would be hard-pressed to find a novel, even one with a business setting, where the characters are all actively pursuing their economic self-interest. Less anecdotal evidence of the explanatory limits of the homo economicus ideal is provided by so-called “ultimatum games.” These generally involve two players, one of whom is given a certain amount of money, say $100, by an experimenter, and the other of whom is given a kind of veto. The first player may offer any non-zero fraction of the $100 to the second player, who can either accept or reject it. If he accepts it, he is given whatever amount the first player has offered, and the first player keeps the balance.

One would also suspect that the first player, knowing this, would make only tiny offers to the second player. Both suppositions are false. The offers range up to 50 percent of the money involved, and, if deemed too small and therefore humiliating, they are sometimes rejected. Notions of fairness and equality, as well as anger and revenge, seem to play a role. Behavioral Finance People’s reactions to ultimatum games may be counterproductive, but they are at least clear-eyed. A number of psychologists in recent years have pointed out the countless ways in which we’re all subject to other sorts of counterproductive behavior that spring from cognitive blind spots that are analogues, perhaps, of optical illusions. These psychological illusions and foibles often make us act irrationally in a variety of disparate endeavors, not the least of which is investing.

European stock market euros benefits of standardizing European currencies euro-pound/pound-euro exchange rate expected excess return expected value. see also mean value covariance and formula for obtaining graphing against risk (Markowitz optimal portfolios) insurance company example “maximization of expected value,” mu (m) probability theory and exploitable opportunities, tendency to disappear Fama, Eugene Fibonacci numbers Elliott wave theory and golden ratio and fibre-optic cable fifty-two-week highs “flocking effect,” Internet Fooled by Randomness (Taleb) formulas Black-Scholes options compound interest expected value fractals Frank, Robert fraud. see also accounting scandals applying Benford’s Law to corporate fraud applying Benford’s law to income tax fraud Bernie Ebbers Salomon Smith Barney benefitting illegally from IPOs WCOM fraud wrongdoing of brokers at Merrill Lynch free market economy French, Ken Full House: The Spread of Excellence from Plato to Darwin (Gould) fund managers. see also stock brokers/analysts fundamental analysis determining fundamental value by discounting process evidence supporting present value and sequence complexity and trading rules and as sober investment strategy stock valuation with unexciting nature of future value P/E ratio as measure of future earnings expectations present value and gambler’s fallacy games gambling and probability game theory guessing games Monopoly Parrondo’s paradox St. Petersburg paradox ultimatum games WorldCom board game Gans, Herbert Gates, Bill geometric mean illustrated by IPO purchases/sales rate of return “ghosts,” investors Gilder, George Gilovich, Thomas Godel, Kurt Goethe golden ratio Goodman, Nelson gossip Gould, Steven Jay Graham, Benjamin Greek mathematics Greenspan, Alan impact on stock and bond markets on irrational exuberance of investors growth investing vs. value investing growth stocks Grubman, Jack guessing games guilt and despair over market losses Hart, Sergiu “head and shoulders” pattern hedge funds herd-like nature, of stock market Hill, Ted How Nature Works (Bak) How We Know What Isn’t So (Gilovich) “The Imp in the Bottle” (Stevenson) In Search of Excellence (Peters) incompleteness theorem of mathematical logic index funds Efficient market theorists investing in as safe investment inflationary universe hypothesis Innumeracy (Paulos) insider trading attraction of stock manipulation by unexplained price movements and Institutional Investor insurance company example, expected value insurance put options interest rates, market predictability and internal rate of return Internet diameter (or interconnectedness) of “flocking effect,” as network of associations investment clubs investment strategies. see also predictability, of stock market based on Parrondo’s paradox contrarian investing dogs of the Dow fundamental analysis. see fundamental analysis momentum investing secrecy and value investing. see value investing investments. see also margin investments confirmation bias and considering utility of dollars invested vs. dollars themselves counter-intuitive emotions dictating guilt and despair over losses ignoring uniformity of positive ratings protective measures randomness vs. predictability and rumors and safe windfall money and investors. see also traders behavior as nonlinear systems beliefs of impact Efficient Market Hypothesis “blow up” and becoming “ghosts,” buying/selling puts on S&P common knowledge and gauging investors as important as gauging investments irrational exuberance/irrational despair online trading and price oscillation created by investor reactions to each other self description in bear and bull markets short-term IPOs alternative rates of return from as a pyramid scheme Salomon Smith Barney benefitting illegally from stock market in 1990s and strategy for buying and selling Jegadeesh, Narsimhan Jeong, Hawoong Judgment Under Uncertainty (Tversky, Kahneman, and Slovic) Kahneman, Daniel Keynes, John Maynard Kolmogorov, A.


pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bernie Madoff, British Empire, buy and hold, central bank independence, collective bargaining, commodity trading advisor, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, information asymmetry, Jean Tirole, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge worker, law of one price, light touch regulation, Long Term Capital Management, low skilled workers, mandatory minimum, market bubble, market clearing, market fundamentalism, means of production, minimum wage unemployment, moral hazard, new economy, obamacare, old-boy network, open economy, Pareto efficiency, Paul Samuelson, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, rolodex, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, ultimatum game, union organizing, Vilfredo Pareto, working-age population, World Values Survey

Adult proposers rarely give less than 30 percent to the responder and many responders reject offers of less than 30 percent. Even in the dictator game, where the responders have to take what they get, dictators routinely give a significant amount, though less than in the ultimatum game (Bolton and Ockenfels 2000). On the other hand, a simple auction game shows that competition can indeed induce behavior conforming to the homo economicus assumption. In such an experiment one player gets the right to auction off money, say $10, provided by the experimenter. Several other participants, perhaps ten, compete with their offers for the money. The same people who reject an offer of $1 in the ultimatum game and so take nothing 166 ECONOMISTS AND THE POWERFUL voluntarily offer more than $9 for a ten dollar bill, netting less than $1 for themselves and leaving more than $9 to the lucky auctioneer (Bolton and Ockenfels 2000).

They are thus not suited to analyze modern capitalist societies. —Samuel Bowles and Herbert Gintis, 2006 An almost uncountable number of field studies and laboratory experiments that have tested the notion of homo economicus have unfailingly found it wanting. Strong feelings of solidarity, fairness, cooperation and revenge seem to be hardwired into human nature. Behavioral economists have used a laboratory experiment called the ultimatum game to show these feelings. The experimenters pair participants and designate one in each pair as the proposer. They give each pair a sum of money, say US$10, and the proposer can suggest how this money shall be divided between the two. The responder can either accept or reject the proposal. If the responder rejects the proposal, both get nothing. Homo economicus would offer $0.01 to the responder and the responder, if also a homo economicus, would accept, as $0.01 is better than nothing.

The same people who reject an offer of $1 in the ultimatum game and so take nothing 166 ECONOMISTS AND THE POWERFUL voluntarily offer more than $9 for a ten dollar bill, netting less than $1 for themselves and leaving more than $9 to the lucky auctioneer (Bolton and Ockenfels 2000). Bolton and Ockenfels (2000) have developed a theory called ERC, which can consistently explain these seemingly contradictory results. ERC stands for equity, reciprocity and competition. It assumes that people have two main motivations. They want to make more money so they will be able to consume more and they want to get their fair share. The two motivations are in conflict in the ultimatum game. As the share offered to the responder gets smaller, the distribution becomes very uneven. In this case, many responders prefer an equal distribution of zero and zero rather than getting a little more money in a very unfair distribution. The theory can also explain the modesty of bidders in the auction game. The bidders would like to get a higher share. However, if they bid low and others bid high, they will get a very low percentage (0 percent) and a zero absolute amount.


The Limits of the Market: The Pendulum Between Government and Market by Paul de Grauwe, Anna Asbury

"Robert Solow", banking crisis, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, conceptual framework, crony capitalism, Erik Brynjolfsson, eurozone crisis, Honoré de Balzac, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kitchen Debate, means of production, moral hazard, Paul Samuelson, price discrimination, price mechanism, profit motive, Robert Gordon, Ronald Coase, Simon Kuznets, The Nature of the Firm, The Rise and Fall of American Growth, too big to fail, transaction costs, trickle-down economics, ultimatum game, very high income

Generally we have no problem with people who perform well earning a great deal. Performance can be rewarded. What we find morally reprehensible is people being rewarded when they do not deserve it. Our moral sensibilities are offended when we discover that people have become rich through theft, betrayal, or corruption. The sense of fairness seems to be universal. This has been confirmed in many experiments involving the ultimatum game, which works as follows. John receives one hundred pounds. He has to share this sum with Peter. John can choose to give Peter any sum between one and one hundred. But Peter is allowed to refuse John’s gift. In that case both end up with nothing. The question is how much John will give Peter. If John’s rational System II has the upper hand, he will give Peter one pound. Rationality as economists define it implies that both players will choose to receive more rather than less.

The experiment has been repeated hundreds of times in different countries and cultures. A gift of one pound (or any other currency) is unanimously rejected because people think it is unfair. They prefer to receive zero pounds rather than a sum they perceive to be unjust. They choose nothing in preference to one pound because this is the only way they can punish the other player, satisfying their sense of fairness. The many experiments with the ultimatum game suggest that the acceptable distribution is around /. There is some variation, but the results indicate that a sense of fairness wins out over pure profit motive. System I dominates System II.  THE L IMI TS OF TH E MAR KET So people like to punish unfairness, even if they pay a financial price for it. Our sense of fairness is deep-rooted. It is often affronted by the free market, which is indifferent to the question of whether the distribution of income is fair.

.  South Korea liberalization and material prosperity  real GDP per capita , f Soviet Union see Russia Spain eurozone and weakening of government – eurozone government bond spreads, ten-year f global financial crisis ()  government debt f,  gross domestic product (GDP) per capita f interest rate on ten-year government bonds f labour costs, gross hourly f liquidity crisis  Spartacus movement – specialization – stagnation ,  structural problems in currency union  supply and demand , f Sweden employer contribution and labour costs   INDEX labour costs, gross hourly f productivity, labour costs and public sector  total income, share of received by top % f, f system I intuitive, emotional behaviour –, b, , –b,  system II individuals’ rational, calculating capacities –, b, , b,  taxation  and environment , – external limits of governments  increase  progressive wealth tax  see also income tax technological optimism ,  technological pessimism  technological progress , –, – tipping points , ,  Tocqueville, A. de  too big to fail banks  top-down control mechanisms  top managers/CEOs and winner-takesall – transaction costs  trickle-down theory  Tuymans, L.  ultimatum game  unemployment , , , , – United Kingdom ,  Bank of England , , ,  capital, share of belonging to top % and top % t debt issuance in own currency  government control over currency  government debt f,  gross domestic product (GDP) in constant prices , f gross domestic product (GDP) per capita f income taxes f, , f,  interest rate on ten-year government bonds f labour costs, gross hourly f social security spending as percentage of government spending f total income received by top % f, f United States , ,  capital, share of belonging to top % and top % t consumption per capita  Federal Reserve (Fed) , , , n gross domestic product (GDP) in constant prices , f income, share of total received by top % f, f income taxes f, , f,  New Deal  productivity, annual growth in f,  social security spending as percentage of government spending f taxation policies capping top incomes  value added tax (VAT) –,  virtuous circle  wages –, ,  wealth inequalities ,  well-being ,  collective , , , ,  consumer ,  economic  individual , , ,  Western Europe ,  gross domestic product (GDP) per capita, average annual economic growth of , f, f,  growth  growth production per capita since industrial revolution , f labour costs, high and prosperity  social security  willingness to pay , , b, b winner-takes-all phenomenon – World Bank  World Economic Forum – world inequality, development of –b 


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Empirical Market Microstructure: The Institutions, Economics and Econometrics of Securities Trading by Joel Hasbrouck

Alvin Roth, barriers to entry, business cycle, conceptual framework, correlation coefficient, discrete time, disintermediation, distributed generation, experimental economics, financial intermediation, index arbitrage, information asymmetry, interest rate swap, inventory management, market clearing, market design, market friction, market microstructure, martingale, price discovery process, price discrimination, quantitative trading / quantitative finance, random walk, Richard Thaler, second-price auction, selection bias, short selling, statistical model, stochastic process, stochastic volatility, transaction costs, two-sided market, ultimatum game, zero-sum game

Faced with unfavorable terms an institutional trader might search the prices of other dealers with whom they have relationships, but individuals rarely have accounts with more than one broker. Recent work on the U.S. municipal securities markets highlights the role of bargaining power in a dealer market (Green, Hollifield, and Schuerhoff (2005)). In economic terms, this is an ultimatum game. In the standard fullinformation ultimatum game, one agent (the allocator) proposes a division of the total payoff, and the other agent (the recipient) either accepts or rejects the proposal. If the recipient accepts, both players receive the proposed payoff; if the recipient rejects, both players receive zero. The main feature of this literature is the divergence between the predicted rational outcomes and those that arise in experiments (and in most individuals’ experiences).

Ingersoll, Jonathan E. Jr., 1987, Theory of Financial Decision Making (Rowman and Littlefield, Lanham, MD). Irvine, Paul J., Marc L. Lipson and Andy Puckett, 2006, Tipping. Review of Financial Studies forthcoming. Jones, Charles M., Gautam Kaul, and Marc L. Lipson, 1994, Transactions, volume, and volatility, Review of Financial Studies 7, 631–51. Kagel, John H., Chung Kim, and Donald Moser, 1996, Fairness in ultimatum games with asymmetric information and asymmetric payoffs, Games and Economic Behavior 13, 100–110. Karlin, Samuel, and Howard M. Taylor, 1975, A First Course in Stochastic Processes (Academic Press, New York). Keim, Donald B., and Ananth Madhavan, 1995, Anatomy of the trading process: Empirical evidence on the behavior of institutional traders, Journal of Financial Economics 37(3), 371–98. Keim, Donald B., and Ananth Madhavan, 1996, The upstairs market for block trades: Analysis and measurement of price effects, Review of Financial Studies 9, 1–36.

., and Christoph Schenzler, 2002, Measuring market quality: the relation between quoted and effective spreads (Owen School of Management, Vanderbilt University). Subrahmanyam, Avanidhar, 1991, Risk aversion, market liquidity, and price efficiency, Review of Financial Studies 4, 416–41. Subrahmanyam, Avanidhar, 1991, A theory of trading in stock index futures, Review of Financial Studies 4, 17–51. Teweles, Richard J., and Bradley, Edward S., 1998, The Stock Market, 7th ed. (John Wiley, New York). Thaler, Richard H., 1988, Anomalies: The ultimatum game, Journal of Economic Perspectives 2, 195–206. Tsay, Ruey S., 2002, Analysis of Financial Time Series (John Wiley, New York). U.S. Securities and Exchange Commission, 1963, Special Study of the Securities Markets, U.S. Government Printing Office, via the Securities and Exchange Commission Historical Society, available online at http://www.sechistorical.org/collection/papers/1960/1963_SS_Sec_ Markets/.


pages: 473 words: 130,141

The Goodness Paradox: The Strange Relationship Between Virtue and Violence in Human Evolution by Richard Wrangham

agricultural Revolution, Alfred Russel Wallace, Defenestration of Prague, experimental subject, Fellow of the Royal Society, impulse control, income inequality, meta analysis, meta-analysis, out of africa, phenotype, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Steven Pinker, twin studies, ultimatum game

Again, our biologically given emotions exert critical influences on our moral decisions.19 Since 1982, the Ultimatum Game has provided a standardized context for studying moral choices. The game allows investigators to study people’s choices about sharing a resource with a stranger. Conventional economic theory predicted that decisions would depend on self-interest. However, in worldwide tests in more than thirty countries, from hunter-gatherers to the Harvard Business School, both adults and children are spontaneously and routinely more generous than expected by theories of economic maximization. This result makes humans very different from chimpanzees—and probably any other nonhumans.20 The Ultimatum Game has two players, Donor and Decider, instructed in the rules by a researcher. Donor and Decider are told that if they play right they will be allowed to share a sum of money that the researcher will give to Donor.

This is big enough for Decider to accept, which leaves both Donor and Decider content. They both get something. Deciders’ rejection of small offers, thus not maximizing their self-interest, is virtually universal. Regardless of whether they will ever meet Donors, Deciders act by a different principle than economic maximization. Chimpanzees do not play the Ultimatum Game in the same way as humans. Ingenious modifications of the Ultimatum Game, using food rewards instead of money, show that captive chimpanzees behave like the imagined Homo economicus, a species in which individuals always try to maximize their personal economic gains. Decider chimpanzees accept even the smallest rewards offered by Donor chimpanzees; unlike humans, they never reject “unfair” offers. The stark difference draws attention to the uniqueness of the human moral senses.21 * * * — So the first big problem about our evolved moral psychology is why, when we give or receive, we do not behave like Homo economicus or chimpanzees.

Twenty-eight percent were not religious. Both Muslim and Christian children were less altruistic than nonreligious children. 17. Bloom 2012. 18. DeScioli and Kurzban 2009. 19. Haidt 2007, pp. 998, 1000. 20. Gintis et al. 2015; Henrich 2016. 21. Jensen et al. 2007. Jensen et al. 2013 respond to a critique of their conclusion that chimpanzees do not show any other-regarding behavior when playing the Ultimatum Game. 22. Elkin 1938; Berndt and Berndt 1988. 23. Cultural norms raise closely similar problems to moral behavior about whether, if they are good for a group, they necessarily arose because of that fact. That a norm such as a selectively applied food taboo might have group benefits (for example, in preventing pregnant women from eating foods that might be risky for her infant) suggests to many people that it arose through a form of group selection.


Super Thinking: The Big Book of Mental Models by Gabriel Weinberg, Lauren McCann

affirmative action, Affordable Care Act / Obamacare, Airbnb, Albert Einstein, anti-pattern, Anton Chekhov, autonomous vehicles, bank run, barriers to entry, Bayesian statistics, Bernie Madoff, Bernie Sanders, Black Swan, Broken windows theory, business process, butterfly effect, Cal Newport, Clayton Christensen, cognitive dissonance, commoditize, correlation does not imply causation, crowdsourcing, Daniel Kahneman / Amos Tversky, David Attenborough, delayed gratification, deliberate practice, discounted cash flows, disruptive innovation, Donald Trump, Douglas Hofstadter, Edward Lorenz: Chaos theory, Edward Snowden, effective altruism, Elon Musk, en.wikipedia.org, experimental subject, fear of failure, feminist movement, Filter Bubble, framing effect, friendly fire, fundamental attribution error, Gödel, Escher, Bach, hindsight bias, housing crisis, Ignaz Semmelweis: hand washing, illegal immigration, income inequality, information asymmetry, Isaac Newton, Jeff Bezos, John Nash: game theory, lateral thinking, loss aversion, Louis Pasteur, Lyft, mail merge, Mark Zuckerberg, meta analysis, meta-analysis, Metcalfe’s law, Milgram experiment, minimum viable product, moral hazard, mutually assured destruction, Nash equilibrium, Network effects, nuclear winter, offshore financial centre, p-value, Parkinson's law, Paul Graham, peak oil, Peter Thiel, phenotype, Pierre-Simon Laplace, placebo effect, Potemkin village, prediction markets, premature optimization, price anchoring, principal–agent problem, publication bias, recommendation engine, remote working, replication crisis, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, ride hailing / ride sharing, Robert Metcalfe, Ronald Coase, Ronald Reagan, school choice, Schrödinger's Cat, selection bias, Shai Danziger, side project, Silicon Valley, Silicon Valley startup, speech recognition, statistical model, Steve Jobs, Steve Wozniak, Steven Pinker, survivorship bias, The Present Situation in Quantum Mechanics, the scientific method, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, transaction costs, uber lyft, ultimatum game, uranium enrichment, urban planning, Vilfredo Pareto, wikimedia commons

Market Norms Social Norms No money involved No instant payback Community situations Market Norms Money involved Transactional Business situations You may run into similar issues when situations revolve around the perception of fairness. Economists use a game called the ultimatum game to study how the perception of fairness affects actions. Here’s how it works: The game is played by two people. One person receives some money (say $10). This first person offers to split the money with the second person (say $5/$5, $7/$3, $8/$2, or whatever they want). This offer is an ultimatum, so the second person only has two choices: to accept or reject the offer. If its accepted, they both keep the offered split, and if rejected, they both get nothing. The purely logical way to play the ultimatum game is for the first person to offer the minimum (e.g., a $9.99/$0.01 split) and for the second person to accept it, since otherwise they would get nothing, and there is no other negotiation possible.

(Sometimes people also say crossing the Rubicon, referencing Julius Caesar’s crossing of the Rubicon River with his troops in 49 B.C., deliberately breaking Roman law, making armed conflict inevitable and ultimately leading to him becoming dictator of Rome.) Game theory can again help you work through your potential exit strategies, assessing likely long-term outcomes and evaluating how various tactics might affect them. While not all situations parallel game-theory models (like the prisoner’s dilemma or the ultimatum game), most can still fruitfully be examined through a game-theory lens. In any conflict, whether in the endgame stage or otherwise, we encourage you to list the choices currently available to all the “players,” along with the consequences and payoffs. This method should help you decide whether a game is worth playing (or continuing), how to approach playing it, and whether there is some way to change the game so the outcome leans in your favor.

Thinking this way also helps you with diplomacy, because using a game-theory lens means you must think about how other players will move and react to your moves, which is a forcing function (see Chapter 4) to empathize with their goals and motivations. And through this same process you might also better clarify your own goals and motivations. KEY TAKEAWAYS Analyze conflict situations through a game-theory lens. Look to see if your situation is analogous to common situations like the prisoner’s dilemma, ultimatum game, or war of attrition. Consider how you can convince others to join your side by being more persuasive through the use of influence models like reciprocity, commitment, liking, social proof, scarcity, and authority. And watch out for how they are being used on you, especially through dark patterns. Think about how a situation is being framed and whether there is a way to frame it that better communicates your point of view, such as social norms versus market norms, distributive justice versus procedural justice, or an appeal to emotion.


pages: 479 words: 144,453

Homo Deus: A Brief History of Tomorrow by Yuval Noah Harari

23andMe, agricultural Revolution, algorithmic trading, Anne Wojcicki, anti-communist, Anton Chekhov, autonomous vehicles, Berlin Wall, call centre, Chris Urmson, cognitive dissonance, Columbian Exchange, computer age, Deng Xiaoping, don't be evil, drone strike, European colonialism, experimental subject, falling living standards, Flash crash, Frank Levy and Richard Murnane: The New Division of Labor, glass ceiling, global village, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, job automation, John Markoff, Kevin Kelly, lifelogging, means of production, Mikhail Gorbachev, Minecraft, Moneyball by Michael Lewis explains big data, Monkeys Reject Unequal Pay, mutually assured destruction, new economy, pattern recognition, Peter Thiel, placebo effect, Ray Kurzweil, self-driving car, Silicon Valley, Silicon Valley ideology, stem cell, Steven Pinker, telemarketer, The Future of Employment, too big to fail, trade route, Turing machine, Turing test, ultimatum game, Watson beat the top human players on Jeopardy!, zero-sum game

A rational person offered a dollar will always say yes. What does he care if the other player gets $99? Classical economists have probably never left their laboratories and lecture halls to venture into the real world. Most people playing the Ultimatum Game reject very low offers because they are ‘unfair’. They prefer losing a dollar to looking like suckers. Since this is how the real world functions, few people make very low offers in the first place. Most people divide the money equally, or give themselves only a moderate advantage, offering $30 or $40 to the other player. The Ultimatum Game made a significant contribution to undermining classical economic theories and to establishing the most important economic discovery of the last few decades: Sapiens don’t behave according to a cold mathematical logic, but rather according to a warm social logic.

During the following years, despite all the hardships of war, these 60,000 armed men never revolted against him – indeed, many of them served him with exceptional courage, risking and even sacrificing their very lives. Why did the Egyptian peasants and Prussian soldiers act so differently than we would have expected on the basis of the Ultimatum Game and the capuchin monkeys experiment? Because large numbers of people behave in a fundamentally different way than do small numbers. What would scientists see if they conducted the Ultimatum Game experiment on two groups of 1 million people each, who had to share $100 billion? They would probably have witnessed strange and fascinating dynamics. For example, since 1 million people cannot make decisions collectively, each group might sprout a small ruling elite. What if one elite offers the other $10 billion, keeping $90 billion?

This is bad news for psychologists, sociologists, economists and others who try to decipher human society through laboratory experiments. For both organisational and financial reasons, the vast majority of experiments are conducted either on individuals or on small groups of participants. Yet it is risky to extrapolate from small-group behaviour to the dynamics of mass societies. A nation of 100 million people functions in a fundamentally different way to a band of a hundred individuals. Take, for example, the Ultimatum Game – one of the most famous experiments in behavioural economics. This experiment is usually conducted on two people. One of them gets $100, which he must divide between himself and the other participant in any way he wants. He may keep everything, split the money in half or give most of it away. The other player can do one of two things: accept the suggested division, or reject it outright. If he rejects the division, nobody gets anything.


pages: 226 words: 59,080

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, business cycle, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, price stability, prisoner's dilemma, profit maximization, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Vilfredo Pareto, Washington Consensus, white flight

A little bit of induction may have helped Nalebuff and his colleague recognize at the outset that real-world people do not act like the rational automatons that populate theorists’ models! Today, it is unlikely they would have made the same miscalculation. Experimental work has become much more common, and game theorists have a greater appreciation of where their standard predictions go wrong. Consider the “ultimatum game,” in which the calculations are reminiscent of the taxicab experience. Two players have to agree on how to share $100. One side makes a take-it-or-leave-it offer, which the other side either accepts or rejects. If the responder accepts, then each side receives what they agreed on. If he rejects, they both get nothing. If both players are “rational,” the first player will keep almost the entire $100 for himself, offering the other player a tiny share (perhaps just $1).

Most offers are in the range of $30–$50, and anything less is typically rejected by the responding player. Standard game theory has little predictive power for this game. That’s one reason why economists have moved to different types of models. Recent work in behavioral economics incorporates considerations of fairness and therefore is more applicable to real-life settings that resemble the ultimatum game. Lab experiments use human subjects, typically undergraduates, and have long been common in psychology. Thanks to these investigations, economists are learning more about what drives human behavior besides material self-interest, such as altruism, reciprocity, and trust. Models of competition and markets are being discarded or refined if their results are routinely violated in these experiments.

., 113–45 specific events explained by, 138–44 universal validity of, 114 time-inconsistent preferences, 62–63 “Time to Build and Aggregate Fluctuation” (Kydland and Prescott), 101n tipping points, 42 Tirole, Jean, 208–9 trade, 11, 87, 91, 136, 141, 182–83, 194 in business cycles, 127 comparative advantage in, 52–55, 58n, 59, 139, 170 computational models in tracking of, 41 current account deficits and, 153 general-equilibrium effects and, 41, 56–58, 69n, 91, 120 income inequality in, 139–40 liberalization of, 160, 162–63, 165, 169 outsourcing and, 149 public sector size and, 109–10 second-best theory applied in, 58–61, 163–64, 166 2x2 model of, 52–53 trade creation effect, 59 trade diversion effect, 59 trade unions, 124, 143 Transatlantic Trade and Investment Partnership (TTIP), 41 Transforming Traditional Agriculture (Schultz), 75n transportation, congestion pricing and, 2–3 Truman, Harry S., 151 tulip bubble, 154 Turkey, 166 Ulam, Stanislaw, 51 ultimatum game, 104 unemployment, 102 in business cycles, 125–37 classical view of, 126 in Great Recession, 153 wages and, 118, 150 see also employment Unger, Roberto Mangabeira, xi United States: comparative advantage principle and, 59–60, 139 deficit in, 149 educational vouchers in, 24 federal system in, 187 garment industry in, 57–58 Gold Standard in, 127 Great Depression in, 128 Great Recession in, 115, 134–35, 152–59 housing bubble in, 153–54, 156 immigration issue in, 56–57 income inequality in, 117, 124–25, 138–44 labor productivity and wages in, 123–24, 141 national debt in, 153 outsourcing in, 149 trade agreements of, 41 universal validity, 66–67 Uruguay, 86 validity, external vs. internal types of, 23–24 value, theories of, 117–21 Varian, Hal, 20 verbal models, 34 Vickrey, William, 2–3 Vietnam, 57–58 Vietnam War, 108 “Views among Economists: Professional Consensus or Point-Counterpoint?”


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Alchemy: The Dark Art and Curious Science of Creating Magic in Brands, Business, and Life by Rory Sutherland

3D printing, Alfred Russel Wallace, barriers to entry, basic income, Black Swan, butterfly effect, California gold rush, call centre, Captain Sullenberger Hudson, Cass Sunstein, cognitive dissonance, Daniel Kahneman / Amos Tversky, Dava Sobel, delayed gratification, Donald Trump, double helix, Downton Abbey, Elon Musk, Firefox, George Akerlof, gig economy, Google Chrome, Google X / Alphabet X, Grace Hopper, Hyperloop, Ignaz Semmelweis: hand washing, IKEA effect, information asymmetry, James Dyson, John Harrison: Longitude, loss aversion, low cost airline, Mason jar, Murray Gell-Mann, Peter Thiel, placebo effect, race to the bottom, Richard Feynman, Richard Thaler, Rory Sutherland, shareholder value, Silicon Valley, social intelligence, Steve Jobs, supply-chain management, the map is not the territory, The Market for Lemons, The Wealth of Nations by Adam Smith, ultimatum game, universal basic income, Upton Sinclair, US Airways Flight 1549, Veblen good

For instance, an engagement ring serves no practical purpose as an object. However, the object – and its expense – make it highly redolent with meaning; an expensive ring is a costly bet by a man in his belief that he believes – and intends – his marriage to last. Now, you might expect a book of this kind to have a chapter about the Ultimatum Game* and other experimental, game-theoretic investigations into the nature of trust and reciprocation. This book contains no such chapter. The reason for that is that the Ultimatum Game is stupid, and so is the Prisoner’s Dilemma: these games exist in a context-free, theoretical universe with no real-life parallels. They both posit the idea of the one-shot exchange, a transaction involving two strangers with no knowledge of the other’s identity. In the real world, such transactions never take largely place – we choose to buy things in shops, not from random strangers in the street.* When we engage in transactions, we are generally aware of the other party’s identity and can see clues to their commitment.

.* He is at a point where the loss of his reputation will be far more costly than whatever he might gain by refusing to honour our exchange, which allows me to derive trust from the context in which the exchange takes place. Upfront investment is proof of long-term commitment, which is a guarantor of honest behaviour. Reputation is a form of skin in the game: it takes far longer to acquire a reputation than to lose one. If you wish to make an Ultimatum Game work so that everybody would cooperate, allow me to propose a simple mechanism: you simply demand that, before anyone is allowed to play, they are required to memorise 25,000 streets and 20,000 landmarks in London. This will take four years of their life. At that point, all you need is a simple mechanism to ensure that cheaters can be expelled from the game. Under such circumstances no one will wish to cheat, since it would place them at risk of being thrown out of the game before they have recouped the effort they invested in gaining entry in the first place.* There remains one problem, which is the possibility that people may cheat immediately before they leave the game.* In theory, there is nothing to stop a London taxi driver from taking an appallingly roundabout route when carrying the last passenger of his working life.

*Americans should remember that there is no numbered grid system in London – every street is individually named and, to add further confusion, the same street name may reappear in different parts of the city. *The London system is not perfect: one taxi driver, John Worboys, was convicted in 2009 for 12 rapes and sexual assaults – and was suspected of committing many more, but such cases are very rare indeed. In London in 2016, 31 licensed taxi drivers were charged with sexual offences, and not a single black cab driver was among them. *The Ultimatum Game and Prisoner’s Dilemma are both theoretical exercises that investigate how cooperation can be made to work. Google them, by all means, but remember they are artificial. *There is only one instance where anyone I’ve met engaged in a one-shot, high-value exchange with someone whose identity they did not know and, predictably, it was a disaster. A friend had moved from England to Australia and wished to buy a second-hand car.


pages: 352 words: 90,622

Thieves of State: Why Corruption Threatens Global Security by Sarah Chayes

Celtic Tiger, colonial rule, crony capitalism, drone strike, failed state, income inequality, microcredit, offshore financial centre, plutocrats, Plutocrats, structural adjustment programs, trade route, ultimatum game, WikiLeaks, winner-take-all economy, young professional

Everyone discussed the quality of the work, who benefited, or the new cars the chief implementers were driving. In other words, development resources passed through a corrupt system not only reinforced that system by helping to fund it but also inflamed the feelings of injustice that were driving people toward the insurgency. Laboratory experiments over the past several decades have demonstrated humans’ apparently irrational revolt against such unjust bargains. The experiments, known as “ultimatum games,” allocate a sum of money to one player, with instructions to divide it with another. If the recipient accepts the offer, the deal goes through. If she rejects it, both players get nothing. Economists had presumed that a recipient, acting rationally, would accept any amount greater than zero. In fact, in experiment after experiment—even with stakes as high as a month’s salary—roughly half of recipients rejected offers lower than 20 percent of the total sum.7 These experiments apply almost directly to development work.

In fact, in experiment after experiment—even with stakes as high as a month’s salary—roughly half of recipients rejected offers lower than 20 percent of the total sum.7 These experiments apply almost directly to development work. I frequently heard the very same numbers come up in the arguments of Western officials. ‘Let’s say 80 percent of the humanitarian aid money is skimmed off,’ they would postulate. ‘At least the people are getting something. More than they would if we weren’t funding the projects at all.’ But ultimatum game experiments show that many recipients would in fact prefer to walk away empty-handed than accept such an unfair deal. This pervasive human reflex might help explain why development projects kept getting attacked in Afghanistan. Perhaps it was not just the projects’ association with non-Muslim foreigners that angered the attackers. Perhaps it was also the unjust distribution of resources—especially when the benefits to ordinary people were indirect, as in the case of a road or a school, while the much greater payoffs to corrupt officials and their cronies came in the form of cash in hand.

CHAPTER TWELVE Forging an Appeal on Earth The Netherlands, England, America, ca. 1560–1787 An absence of appeal this absolute can drive men and women to extremes—especially when they suffer treatment they feel is acutely unfair. They will incur great risk, sustain material loss, and take steps that might once have been unimaginable to them, to try to redress the balance. Corroborating experiments like the “ultimatum game,” or observations of the way some primates behave,1 historical examples demonstrate this tendency. Take the sixteenth century, when Europeans were confronting just such an implacable lack of recourse. Time had revealed, by then, the fundamental deficiency in all those pious books of advice written for rulers over the years. Princes were ignoring them. Fear of divine judgment had failed to persuade them to take their subjects’ interests to heart, treat them equitably, or abstain from thieving their property.


pages: 1,535 words: 337,071

Networks, Crowds, and Markets: Reasoning About a Highly Connected World by David Easley, Jon Kleinberg

Albert Einstein, AltaVista, clean water, conceptual framework, Daniel Kahneman / Amos Tversky, Douglas Hofstadter, Erdős number, experimental subject, first-price auction, fudge factor, George Akerlof, Gerard Salton, Gerard Salton, Gödel, Escher, Bach, incomplete markets, information asymmetry, information retrieval, John Nash: game theory, Kenneth Arrow, longitudinal study, market clearing, market microstructure, moral hazard, Nash equilibrium, Network effects, Pareto efficiency, Paul Erdős, planetary scale, prediction markets, price anchoring, price mechanism, prisoner's dilemma, random walk, recommendation engine, Richard Thaler, Ronald Coase, sealed-bid auction, search engine result page, second-price auction, second-price sealed-bid, Simon Singh, slashdot, social web, Steve Jobs, stochastic process, Ted Nelson, The Market for Lemons, The Wisdom of Crowds, trade route, transaction costs, ultimatum game, Vannevar Bush, Vickrey auction, Vilfredo Pareto, Yogi Berra, zero-sum game

But in exchange experiments on this network, the center is not generally able to drive its partners’ shares all the way down to 0; rather one sees splits like 5 -1. 6 6 What causes the negotiations to “pull back” from a completely unbalanced outcome? This is in fact a recurring effect in exchange experiments: human subjects placed in bargaining situations with strong power imbalances will systematically deviate from the extreme predictions of simple theoretical models. One of the most basic experimental frameworks for exploring this effect is called the Ultimatum Game [202, 380], and it works as follows. Like the bargaining framework discussed in the previous section, the Ultimatum Game also involves two people dividing a dollar, but following a very different procedure than what we saw before: (i) Person A is given a dollar and told to propose a division of it to person B. That is, A should propose how much he keeps for himself, and how much he gives to B. (ii) Person B is then given the option of approving or rejecting the proposed division.

This, then, is a prediction of how purely money-maximizing individuals would behave in a situation of extreme power imbalance: the one holding all the power (A) will offer as little as possible, and the one with essentially no power will accept anything offered. Intuition —and, as we will see next, experimental results — suggests that this is not how human beings will typically behave. The Results of Experiments on the Ultimatum Game. In 1982, Güth, Schmit- tberger, and Schwarze [202] performed a series of influential experiments in which they studied how people would actually play the Ultimatum Game. They found that people playing the role of A tended to offer fairly balanced divisions of the money — on average, about a third of the total, with a significant number of people playing A in fact offering an even split. Moreover, they found that very unbalanced offers were often rejected by the person playing the role of B.

. . . . . . . . . . . . . . . . 299 10.6 Advanced Material: A Proof of the Matching Theorem . . . . . . . . . . . . 300 10.7 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 11 Network Models of Markets with Intermediaries 319 11.1 Price-Setting in Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 11.2 A Model of Trade on Networks . . . . . . . . . . . . . . . . . . . . . . . . . 323 11.3 Equilibria in Trading Networks . . . . . . . . . . . . . . . . . . . . . . . . . 330 11.4 Further Equilibrium Phenomena: Auctions and Ripple Effects . . . . . . . . 334 11.5 Social Welfare in Trading Networks . . . . . . . . . . . . . . . . . . . . . . . 338 11.6 Trader Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339 11.7 Reflections on Trade with Intermediaries . . . . . . . . . . . . . . . . . . . . 342 11.8 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 12 Bargaining and Power in Networks 347 12.1 Power in Social Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347 12.2 Experimental Studies of Power and Exchange . . . . . . . . . . . . . . . . . 350 12.3 Results of Network Exchange Experiments . . . . . . . . . . . . . . . . . . . 352 12.4 A Connection to Buyer-Seller Networks . . . . . . . . . . . . . . . . . . . . . 356 12.5 Modeling Two-Person Interaction: The Nash Bargaining Solution . . . . . . 357 12.6 Modeling Two-Person Interaction: The Ultimatum Game . . . . . . . . . . . 360 12.7 Modeling Network Exchange: Stable Outcomes . . . . . . . . . . . . . . . . 362 12.8 Modeling Network Exchange: Balanced Outcomes . . . . . . . . . . . . . . . 366 12.9 Advanced Material: A Game-Theoretic Approach to Bargaining . . . . . . . 369 12.10Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376 IV Information Networks and the World Wide Web 381 13 The Structure of the Web 383 13.1 The World Wide Web . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384 13.2 Information Networks, Hypertext, and Associative Memory . . . . . . . . . . 386 13.3 The Web as a Directed Graph . . . . . . . . . . . . . . . . . . . . . . . . . . 394 13.4 The Bow-Tie Structure of the Web . . . . . . . . . . . . . . . . . . . . . . . 397 13.5 The Emergence of Web 2.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 13.6 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 403 6 CONTENTS 14 Link Analysis and Web Search 405 14.1 Searching the Web: The Problem of Ranking . . . . . . . . . . . . . . . . . . 405 14.2 Link Analysis using Hubs and Authorities . . . . . . . . . . . . . . . . . . . 407 14.3 PageRank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414 14.4 Applying Link Analysis in Modern Web Search . . . . . . . . . . . . . . . . 420 14.5 Applications beyond the Web . . . . . . . . . . . . . . . . . . . . . . . . . . 423 14.6 Advanced Material: Spectral Analysis, Random Walks, and Web Search . . . 425 14.7 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437 15 Sponsored Search Markets 445 15.1 Advertising Tied to Search Behavior . . . . . . . . . . . . . . . . . . . . . . 445 15.2 Advertising as a Matching Market . . . . . . . . . . . . . . . . . . . . . . . . 448 15.3 Encouraging Truthful Bidding in Matching Markets: The VCG Principle . . 452 15.4 Analyzing the VCG Procedure: Truth-Telling as a Dominant Strategy . . . . 457 15.5 The Generalized Second Price Auction . . . . . . . . . . . . . . . . . . . . . 460 15.6 Equilibria of the Generalized Second Price Auction . . . . . . . . . . . . . . 464 15.7 Ad Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 467 15.8 Complex Queries and Interactions Among Keywords . . . . . . . . . . . . . 469 15.9 Advanced Material: VCG Prices and the Market-Clearing Property . . . . . 470 15.10Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486 V Network Dynamics: Population Models 489 16 Information Cascades 491 16.1 Following the Crowd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491 16.2 A Simple Herding Experiment . . . . . . . . . . . . . . . . . . . . . . . . . . 493 16.3 Bayes’ Rule: A Model of Decision-Making Under Uncertainty . . . . . . . . . 497 16.4 Bayes’ Rule in the Herding Experiment . . . . . . . . . . . . . . . . . . . . . 502 16.5 A Simple, General Cascade Model . . . . . . . . . . . . . . . . . . . . . . . . 504 16.6 Sequential Decision-Making and Cascades . . . . . . . . . . . . . . . . . . . 508 16.7 Lessons from Cascades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511 16.8 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 513 17 Network Effects 517 17.1 The Economy Without Network Effects . . . . . . . . . . . . . . . . . . . . . 518 17.2 The Economy with Network Effects . . . . . . . . . . . . . . . . . . . . . . . 522 17.3 Stability, Instability, and Tipping Points . . . . . . . . . . . . . . . . . . . . 525 17.4 A Dynamic View of the Market . . . . . . . . . . . . . . . . . . . . . . . . . 527 17.5 Industries with Network Goods . . . . . . . . . . . . . . . . . . . . . . . . . 534 17.6 Mixing Individual Effects with Population-Level Effects . . . . . . . . . . . . 536 17.7 Advanced Material: Negative Externalities and The El Farol Bar Problem . 541 17.8 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549 CONTENTS 7 18 Power Laws and Rich-Get-Richer Phenomena 553 18.1 Popularity as a Network Phenomenon . . . . . . . . . . . . . . . . . . . . . . 553 18.2 Power Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555 18.3 Rich-Get-Richer Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 557 18.4 The Unpredictability of Rich-Get-Richer Effects . . . . . . . . . . . . . . . . 559 18.5 The Long Tail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 561 18.6 The Effect of Search Tools and Recommendation Systems . . . . . . . . . . . 564 18.7 Advanced Material: Analysis of Rich-Get-Richer Processes . . . . . . . . . . 565 18.8 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569 VI Network Dynamics: Structural Models 571 19 Cascading Behavior in Networks 573 19.1 Diffusion in Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 573 19.2 Modeling Diffusion through a Network . . . . . . . . . . . . . . . . . . . . . 575 19.3 Cascades and Clusters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583 19.4 Diffusion, Thresholds, and the Role of Weak Ties . . . . . . . . . . . . . . . 588 19.5 Extensions of the Basic Cascade Model . . . . . . . . . . . . . . . . . . . . . 590 19.6 Knowledge, Thresholds, and Collective Action . . . . . . . . . . . . . . . . . 593 19.7 Advanced Material: The Cascade Capacity . . . . . . . . . . . . . . . . . . . 597 19.8 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613 20 The Small-World Phenomenon 621 20.1 Six Degrees of Separation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621 20.2 Structure and Randomness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622 20.3 Decentralized Search . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626 20.4 Modeling the Process of Decentralized Search . . . . . . . . . . . . . . . . . 629 20.5 Empirical Analysis and Generalized Models . . . . . . . . . . . . . . . . . . 632 20.6 Core-Periphery Structures and Difficulties in Decentralized Search . . . . . . 638 20.7 Advanced Material: Analysis of Decentralized Search . . . . . . . . . . . . . 640 20.8 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 652 21 Epidemics 655 21.1 Diseases and the Networks that Transmit Them . . . . . . . . . . . . . . . . 655 21.2 Branching Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657 21.3 The SIR Epidemic Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 660 21.4 The SIS Epidemic Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666 21.5 Synchronization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669 21.6 Transient Contacts and the Dangers of Concurrency . . . . . . . . . . . . . . 672 21.7 Genealogy, Genetic Inheritance, and Mitochondrial Eve . . . . . . . . . . . . 676 21.8 Advanced Material: Analysis of Branching and Coalescent Processes . . . . . 682 21.9 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 695 8 CONTENTS VII Institutions and Aggregate Behavior 699 22 Markets and Information 701 22.1 Markets with Exogenous Events . . . . . . . . . . . . . . . . . . . . . . . . . 702 22.2 Horse Races, Betting, and Beliefs . . . . . . . . . . . . . . . . . . . . . . . . 704 22.3 Aggregate Beliefs and the “Wisdom of Crowds” . . . . . . . . . . . . . . . . 710 22.4 Prediction Markets and Stock Markets . . . . . . . . . . . . . . . . . . . . . 714 22.5 Markets with Endogenous Events . . . . . . . . . . . . . . . . . . . . . . . . 717 22.6 The Market for Lemons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 719 22.7 Asymmetric Information in Other Markets . . . . . . . . . . . . . . . . . . . 724 22.8 Signaling Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 728 22.9 Quality Uncertainty On-Line: Reputation Systems and Other Mechanisms . 729 22.10Advanced Material: Wealth Dynamics in Markets . . . . . . . . . . . . . . . 732 22.11Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740 23 Voting 745 23.1 Voting for Group Decision-Making . . . . . . . . . . . . . . . . . . . . . . . 745 23.2 Individual Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 747 23.3 Voting Systems: Majority Rule . . . . . . . . . . . . . . . . . . . . . . . . . 750 23.4 Voting Systems: Positional Voting . . . . . . . . . . . . . . . . . . . . . . . . 755 23.5 Arrow’s Impossibility Theorem . . . . . . . . . . . . . . . . . . . . . . . . . 758 23.6 Single-Peaked Preferences and the Median Voter Theorem . . . . . . . . . . 760 23.7 Voting as a Form of Information Aggregation . . . . . . . . . . . . . . . . . . 766 23.8 Insincere Voting for Information Aggregation . . . . . . . . . . . . . . . . . . 768 23.9 Jury Decisions and the Unanimity Rule . . . . . . . . . . . . . . . . . . . . . 771 23.10Sequential Voting and the Relation to Information Cascades . . . . . . . . . 776 23.11Advanced Material: A Proof of Arrow’s Impossibility Theorem . . . . . . . . 777 23.12Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 782 24 Property Rights 785 24.1 Externalities and the Coase Theorem . . . . . . . . . . . . . . . . . . . . . . 785 24.2 The Tragedy of the Commons . . . . . . . . . . . . . . . . . . . . . . . . . . 790 24.3 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793 24.4 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796 Chapter 1 Overview Over the past decade there has been a growing public fascination with the complex “connectedness” of modern society.


pages: 190 words: 61,970

Life You Can Save: Acting Now to End World Poverty by Peter Singer

accounting loophole / creative accounting, Branko Milanovic, Cass Sunstein, clean water, end world poverty, experimental economics, illegal immigration, Martin Wolf, microcredit, Monkeys Reject Unequal Pay, Peter Singer: altruism, pre–internet, purchasing power parity, randomized controlled trial, Richard Thaler, Silicon Valley, Thomas Malthus, ultimatum game, union organizing

Bib Latane and John Darley, The Unresponsive Bystander (New York: Appleton-Century-Crofts, 1970), p. 58.1 am grateful to Judith Lichtenberg, “Famine, Affluence and Psychology,” in Jeffrey Schaller, ed., Peter Singer Under Fire (Chicago: Open Court, forthcoming 2009) both for suggesting the relevance of this research and for this and other references. 20. Bib Latane and John Darley, The Unresponsive Bystander, chapters 6 and 7. 21. There is a substantial literature on the ultimatum game. For a useful discussion, see Martin Nowak, Karen Page, and Karl Sigmund, “Fairness Versus Reason in the Ultimatum Game,” Science 2W (2000), pp. 1773-75. 22. S. F. Brosnan and F.B.M. de Waal, “Monkeys Reject Unequal Pay,” Nature 425 (September 18, 2003), pp. 297-99. 23. Kathleen Vohs, Nicole Mead, and Miranda Goode, “The Psychological Consequences of Money,” Science 314 (2006), pp. 1154-56. 24. Richard Titmuss, The Gifi Relationship: From Human Blood to Social Policy (London: Allen & Unwin, 1970). 25.

Imagine writing that first big check for UNICEF or Oxfam, and then running into your neighbors coming back from a winter vacation in the Caribbean, looking relaxed and tanned, and telling you about their great adventures sailing and scuba diving. How would you feel? So strong is our sense of fairness that, to prevent others getting more than their fair share, we are often willing to take less for ourselves. In the “ultimatum game,” two players are told that one of them, the proposer, will be given a sum of money, say $10, and must divide it with the second player, the responder, but how the money is divided is up to the proposer, who can offer as much or as little as she wishes. If the responder rejects the offer, neither will get anything. The game is played only once, and the players’ identities are not revealed, so their decisions will not be influenced by any thoughts of payback if they should meet again.


pages: 353 words: 98,267

The Price of Everything: And the Hidden Logic of Value by Eduardo Porter

Alvin Roth, Asian financial crisis, Ayatollah Khomeini, banking crisis, barriers to entry, Berlin Wall, British Empire, capital controls, Carmen Reinhart, Cass Sunstein, clean water, Credit Default Swap, Deng Xiaoping, Edward Glaeser, European colonialism, Fall of the Berlin Wall, financial deregulation, Ford paid five dollars a day, full employment, George Akerlof, Gordon Gekko, guest worker program, happiness index / gross national happiness, housing crisis, illegal immigration, immigration reform, income inequality, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: technological unemployment, Joshua Gans and Andrew Leigh, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, longitudinal study, loss aversion, low skilled workers, Martin Wolf, means of production, Menlo Park, Mexican peso crisis / tequila crisis, Monkeys Reject Unequal Pay, new economy, New Urbanism, peer-to-peer, pension reform, Peter Singer: altruism, pets.com, placebo effect, price discrimination, price stability, rent-seeking, Richard Thaler, rising living standards, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Silicon Valley, stem cell, Steve Jobs, Stewart Brand, superstar cities, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, transatlantic slave trade, ultimatum game, unpaid internship, urban planning, Veblen good, women in the workforce, World Values Survey, Yom Kippur War, young professional, zero-sum game

They can be measured using an experiment called the Ultimatum Game. In this game, player A is given money and instructed to share it however she wants with player B. If B refuses, they both walk away empty-handed. If A behaved according to the dicta of economics, she would offer as little as possible and B would accept, on the grounds that it’s better than nothing. Both would end up better off. But people rarely exhibit this kind of behavior. In a series of experiments performed around the world, a group of social scientists encountered a wide array of strategies, reflecting different cultural attributes that seemed shaped to mesh with their specific societies. In the tropical forests of southern Perú, Machiguenga villagers playing the Ultimatum Game offered only 26 percent of their money, on average.

The statistic about Japan’s high prices comes from Robert Lipsey and Birgitta Swedenborg, “Explaining Product Price Differences Across Countries,” NBER Working Paper, July 2007. 165-168 Where Culture Comes From: Discussion of the economic implications of trust draws from Jeff Butler, Paola Giuliano, and Luigi Guiso, “The Right Amount of Trust,” CEPR Discussion Paper, September 2009; and the World Values Survey, 2005-2008 wave (www.wvsevsdb.com/wvs/WVSAnalizeSample.jsp, accessed 07/18/2010). Different views on the deformed lips of Mursi girls are from Mursi Online, Oxford University Department of International Development (www.mursi.org/); and Luigi Guiso, Paola Sapienza, and Luigi Zingales, “Does Culture Affect Economic Outcomes?,” Journal of Economic Perspectives, Vol. 20, Spring 2006, pp. 23-48. The results of experiments using the Ultimatum Game around the world are described in Joseph Heinrich et al., “ ‘Economic Man’ in Cross-Cultural Perspective: Behavioral Experiments in 15 Small-Scale Societies,” Behavioral and Brain Sciences, Vol. 28, 2005, pp. 795-855. The use of myth to manage caribou populations among the Chisasibi is described in Fikret Berkes, Sacred Ecology, 2nd edition (New York: Routledge, 2008), pp. 128-129. Data about cultural proximity between societies that share similar environments is found in Mathias Thoenig, Nicolas Maystre, Jacques Olivier, and Thierry Verdier, “Product-Based Cultural Change: Is the Village Global?

surplus survival Sweden, Swedes culture in The Pirate Bay and Swift, Jonathan Taiwan Tanzania, Tanzanians taxes energy faith and income taxicab drivers, tipping of Tea Party tea prices technology Digital Rights Management (DRM) information innovation and stocks ultrasound see also computers telenovelas telephone calls Televisa television advertising on television sets Templeton, Brad Tenenbaum, Joel Tennessee terrorism Texas, happiness in textile mills Tha Carter III (album) Thailand Thatcher, Margaret Theory of Economic Growth, The (Lewis) Theory of the Leisure Class (Veblen) The Pirate Bay tickets: airline for events time faith and free Times of India Time Warner tipping Titanic, lifeboats on TiVo tobacco see also smoking Togo trade barriers to traffic accidents Transportation Department, U.S. Trobriand Islands Truman, Harry trust faith and Turkey Turkmenistan twins, happiness of Ultimatum Game ultrasound technology unemployment United Airlines United Auto Workers United Kingdom United Nations United States carbon emissions of copyright in culture in divorce in drug abuse in free lunch in gas prices in happiness in health care in housing in illegal immigration to immigrant behavior in income and wages in life expectancy in music in 9/11 compensation in out-of-wedlock births in pharmaceutical industry in politics in polygamy in religion in safety issues in sex in sex ratios in slavery in speed limits in women’s work in work hours in vaccines value of women’s work Varian, Hal Veblen, Thorstein Veja Venables-Vernon, George, the second Baron Vernon vending machines versioning video recorders, digital Vietnam Vogue VoIP technology voting, voters wages executive faith and in Indonesia in London minimum of sports and pop stars time and of women see also income waiters, waitresses Waldfogel, Joel Wall Street Walmart Warner Bros.


Smart Mobs: The Next Social Revolution by Howard Rheingold

A Pattern Language, augmented reality, barriers to entry, battle of ideas, Brewster Kahle, Burning Man, business climate, citizen journalism, computer vision, conceptual framework, creative destruction, Douglas Engelbart, Douglas Engelbart, experimental economics, experimental subject, Extropian, Hacker Ethic, Hedy Lamarr / George Antheil, Howard Rheingold, invention of the telephone, inventory management, John Markoff, John von Neumann, Joi Ito, Joseph Schumpeter, Kevin Kelly, Metcalfe's law, Metcalfe’s law, more computing power than Apollo, New Urbanism, Norbert Wiener, packet switching, Panopticon Jeremy Bentham, pattern recognition, peer-to-peer, peer-to-peer model, pez dispenser, planetary scale, pre–internet, prisoner's dilemma, RAND corporation, recommendation engine, Renaissance Technologies, RFID, Richard Stallman, Robert Metcalfe, Robert X Cringely, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, sharing economy, Silicon Valley, skunkworks, slashdot, social intelligence, spectrum auction, Steven Levy, Stewart Brand, the scientific method, transaction costs, ultimatum game, urban planning, web of trust, Whole Earth Review, zero-sum game

Research reported in 2002 offers provocative theories about how reputation, altruism, and punishment are structured to support human cooperation. A field now known as “experimental economics” has extended game theory to include two specific “minigames”: the “Ultimatum Game” and the “Public Goods Game.” Research using these games as probes indicate that People tend to exhibit more generosity than a strategy of rational self-interest predicts. People will penalize cheaters, even at some expense to themselves. These tendencies and the emotions that accompany them influence individuals to behave in ways that benefit the group.40 The Ultimatum Game takes place between two players who play it once and never again. The players can share the sum of money, but only if they agree on a split. A coin flip gives one player the option of determining how much of the total to keep and how much to offer the other player.

Folderol Folding@home Food sharing, emergence of Forestry resources Fortunati, Leopoldina Forums Foucault, Michel France France Telecom Frankel, Justin Frankfurt School Fraud Frauenfelder, Mark FRC (Federal Radio Commission) Free riders, dilemma of Free Software Foundation Freitas, Nathaniel Frequency hopping Fukuyama, Francis Furniture, computer chips in, See also Smart rooms Future, "shadow" of Future of Ideas, The (Lessig) Gachter, Simon Game theory and Botfighters and the Chicken game and the Deadlock game and economic theory location-based and non-zero sum games and the Prisoner's Dilemma game and the Public Goods Game and reputation systems and the Stag Hunt game and the Ultimatum Game and zero-sum games Gartner Consulting Gates, Bill Gedye, David Gelernter, David General Motors "Generation Txt," Genetics Genome research GeoNote system Georgia Institute of Technology German National Research Center for Information Technology Germany Gershenfeld, Neil GFNs (group-forming networks) Gigabit wireless Gillette Gilliat, Bruce Glance, Natalie Glaxo Global positioning system (GPS) devices in automobiles development of military uses of and spread-spectrum technology and the WorldBoard infrastructure Global System for Mobile Communications (GSM) networks "Gnomes of San Jose, The" (Doctorow) Gnutella GnutellaNet Godell, Lars Goffman, Erving Google Gordon, H.

Technique, use of the term Technoanimism Technological Society, The (Ellul) Telecom Finland Telegraph, advent of Telescopes Terrorism Tetherless Access Textile industry Texting advent of and Generation Txt and packet-switching in the Philippines and "thumb tribes," use of the term See also SMS (Short Message Service) Thailand Theory of Games and Economic Behavior (Neumann and Morgenstern) "The Well" virtual community ThinAirApps Things That Think consortium (MIT) Third-generation (3G) networks Aronsson on regulation of and reputation systems and spectrum licenses and surveillance systems and virtual villages Thompson, Ken 3Com (company) Three-dimensional modeling Threshold models "Thumb tribes," See also Texting Time: -sharing systems "softened" sense of Time-Warner Timex Titantic (ship) Tocqueville, Alexis de Toivonen, Tuomas Tokyo See also Shibuya Crossing (Tokyo) Tokyo Computer Science Laboratory (Sony) T1 connections Tonga Tools for Thought: The History and Future of Mind-Expanding Technology (Rheingold) Torpedoes Torvalds, Linus Toshiba Totalitarianism Townsend, Anthony "Tragedy of the Commons, The" (Hardin) Treatise of Human Nature, A (Hume) Trivers, Robert Truelove, Kelly Truscott, Tom Trust: and eBay Fukuyama on and mobile ad hoc social networks and reputation systems and social pressure webs of Trust: The Social Virtues and the Creation of Prosperity (Fukuyama) T3 connections Turtle hunting Ubiquitous computing (ubicomp) Ueno, Eisaboru Ulan Bator See also Mongolia Ultimatum Game Umeda, Hidekazu Unilever United Devices United Kingdom and the Orange network research on social networks in See also Britain Universal Product Code University of California University of Cambridge University of Connecticut University of Helsinki University of Michigan University of North Carolina University of Oregon University of Oxford University of Toronto University of Trieste Unix Unix-to-Unix copy protocol Upoc Web sitei UPS (United Parcel Service) Urban Empowerment Zone grants URLs (Uniform Resource Locators) U.S.


pages: 1,073 words: 314,528

Strategy: A History by Lawrence Freedman

Albert Einstein, anti-communist, Anton Chekhov, Ayatollah Khomeini, barriers to entry, battle of ideas, Black Swan, British Empire, business process, butterfly effect, centre right, Charles Lindbergh, circulation of elites, cognitive dissonance, coherent worldview, collective bargaining, complexity theory, conceptual framework, corporate raider, correlation does not imply causation, creative destruction, cuban missile crisis, Daniel Kahneman / Amos Tversky, defense in depth, desegregation, Edward Lorenz: Chaos theory, en.wikipedia.org, endogenous growth, endowment effect, Ford paid five dollars a day, framing effect, Frederick Winslow Taylor, Gordon Gekko, greed is good, information retrieval, interchangeable parts, invisible hand, John Nash: game theory, John von Neumann, Kenneth Arrow, lateral thinking, linear programming, loose coupling, loss aversion, Mahatma Gandhi, means of production, mental accounting, Murray Gell-Mann, mutually assured destruction, Nash equilibrium, Nelson Mandela, Norbert Wiener, Norman Mailer, oil shock, Pareto efficiency, performance metric, Philip Mirowski, prisoner's dilemma, profit maximization, race to the bottom, Ralph Nader, RAND corporation, Richard Thaler, road to serfdom, Ronald Reagan, Rosa Parks, shareholder value, social intelligence, Steven Pinker, strikebreaker, The Chicago School, The Myth of the Rational Market, the scientific method, theory of mind, Thomas Davenport, Thomas Kuhn: the structure of scientific revolutions, Torches of Freedom, Toyota Production System, transaction costs, ultimatum game, unemployed young men, Upton Sinclair, urban sprawl, Vilfredo Pareto, War on Poverty, women in the workforce, Yogi Berra, zero-sum game

But giving people more time or raising the stakes to turn the game into something more serious made little difference. In a variation known as the dictator game, the responder was bound to accept whatever the proposer granted. As might be expected, lower offers were made—perhaps about half the average sum offered in the ultimatum game.18 Yet, at about 20 percent of the total, they were not tiny. It became clear that the key factor was not faulty calculation but the nature of the social interaction. In the ultimatum game, the responders accepted far less if they were told that the amount had been determined by a computer or the spin of a roulette wheel. If the human interaction was less direct, with complete anonymity, then proposers made smaller grants.19 A further finding was that there were variations according to ethnicity.

Claims that some universal truths about human cognition and behavior were being illuminated needed qualification. The results could only really be considered at all valid for Western, educated, industrialized, rich, and democratic (WEIRD) societies in which the bulk of the experiments were conducted. Nonetheless, while WEIRD societies were admittedly an unrepresentative subset of the world’s population, they were also an important subset.16 One of the most famous experiments was the ultimatum game. It was first used in an experimental setting during the early 1960s in order to explore bargaining behavior. From the start, and to the frustration of the experimenters, the games showed individuals making apparently suboptimal choices. A person (the proposer) was given a sum of money and then chose what proportion another (the responder) should get. The responder could accept or refuse the offer.

To prevent this would require the imposition of sanctions by the rest of the group, even though this would cost them as individuals. When given a choice which group to join, individuals at first often recoiled from joining one with known sanctions against free riders but eventually would migrate to that group, as they appreciated the importance of ensuring cooperation. Free riders, or unfair proposers in the ultimatum game, were also stigmatized. In another experiment, individuals who expected to play by the rules were told in advance of the game the identities of other players who would be free riders. Once these individuals had been described as less trustworthy, they were generally seen as less likable and attractive. When the games were underway, this prior profiling influenced behavior. There was a reluctance to take risks with those designated untrustworthy, even when these individuals were acting no differently from others.


pages: 462 words: 150,129

The Rational Optimist: How Prosperity Evolves by Matt Ridley

"Robert Solow", 23andMe, agricultural Revolution, air freight, back-to-the-land, banking crisis, barriers to entry, Bernie Madoff, British Empire, call centre, carbon footprint, Cesare Marchetti: Marchetti’s constant, charter city, clean water, cloud computing, cognitive dissonance, collateralized debt obligation, colonial exploitation, colonial rule, Corn Laws, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, dematerialisation, demographic dividend, demographic transition, double entry bookkeeping, Edward Glaeser, en.wikipedia.org, everywhere but in the productivity statistics, falling living standards, feminist movement, financial innovation, Flynn Effect, food miles, Gordon Gekko, greed is good, Hans Rosling, happiness index / gross national happiness, haute cuisine, hedonic treadmill, Hernando de Soto, income inequality, income per capita, Indoor air pollution, informal economy, Intergovernmental Panel on Climate Change (IPCC), invention of agriculture, invisible hand, James Hargreaves, James Watt: steam engine, Jane Jacobs, John Nash: game theory, joint-stock limited liability company, Joseph Schumpeter, Kevin Kelly, Kickstarter, knowledge worker, Kula ring, Mark Zuckerberg, meta analysis, meta-analysis, mutually assured destruction, Naomi Klein, Northern Rock, nuclear winter, oil shale / tar sands, out of africa, packet switching, patent troll, Pax Mongolica, Peter Thiel, phenotype, plutocrats, Plutocrats, Ponzi scheme, Productivity paradox, profit motive, purchasing power parity, race to the bottom, Ray Kurzweil, rent-seeking, rising living standards, Silicon Valley, spice trade, spinning jenny, stem cell, Steve Jobs, Steven Pinker, Stewart Brand, supervolcano, technological singularity, Thales and the olive presses, Thales of Miletus, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, ultimatum game, upwardly mobile, urban sprawl, Vernor Vinge, Vilfredo Pareto, wage slave, working poor, working-age population, Y2K, Yogi Berra, zero-sum game

Generosity seems to come naturally, or rather, ungenerous behaviour is irrationally foolish, because the second player will – and does – consider a derisory offer worth rejecting, if only to punish the selfishness of the first player. The lesson of the ultimatum game and hundreds like it is that again and again people emerge from such experiments as nicer than you think. But the even more surprising lesson is that the more people are immersed in the collective brain of the modern commercial world, the more generous they are. As the economist Herb Gintis puts it, ‘societies that use markets extensively develop a culture of co-operation, fairness and respect for the individual’. His evidence comes from a fascinating study in which people in fifteen mostly small-scale tribal societies were enticed to play the Ultimatum Game. Those societies with the least experience of dealing with outsiders were the most hard-hearted, ungenerous and narrowly ‘rational’.

NIALL FERGUSON The Ascent of Money There is a scene in the film The Maltese Falcon in which Humphrey Bogart is about to be given $1,000 by Sydney Greenstreet and will have to share some of it with Mary Astor. Greenstreet whispers to Bogart that he’d like to give him a word of advice: that he assumes that Bogart is going to give her some of the money, but that if he does not give her as much as she thinks she ought to have, he should be careful. The scene prefigures a game, invented by Werner Guth in the late 1970s and much loved by economists, called the Ultimatum Game, which opens a little window into the human spirit. The first player is given some money and told to divide it with the second player. The second player is told he can accept or refuse the offer, but not change it. If he accepts, he receives the money; if he refuses, neither he nor the first player gets a penny. The question is, how much money should the first player offer the second player?

The Long-term Dynamics of European Homicide Rates in Theoretical Perspective The British Journal of Criminology 41:618-638. p. 85 ‘Greenstreet whispers to Bogart’. Siegfried, T. 2006. A Beautiful Math: John Nash, Game Theory and the Modern Quest for a Code of Nature. Joseph Henry Press. p. 86 ‘As the economist Herb Gintis puts it’. http://www.reason.com/news/show/34772.html. p. 86 ‘people in fifteen mostly small-scale tribal societies were enticed to play the Ultimatum Game’. Henrich, J. et al. 2005. ‘Economic man’ in crosscultural perspective: Behavioral experiments in 15 small-scale societies. Behavioral and Brain Sciences 28:795–815. p. 87 ‘costly punishment of selfishness may be necessary’. Fehr, E. and Gachter, S. 2000. Cooperation and punishment in public goods experiments. American Economic Review, Journal of the American Economic Association 90: 980–94; Henrich, J. et al. 2006.


pages: 518 words: 147,036

The Fissured Workplace by David Weil

accounting loophole / creative accounting, affirmative action, Affordable Care Act / Obamacare, banking crisis, barriers to entry, business cycle, business process, buy and hold, call centre, Carmen Reinhart, Cass Sunstein, Clayton Christensen, clean water, collective bargaining, commoditize, corporate governance, corporate raider, Corrections Corporation of America, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, declining real wages, employer provided health coverage, Frank Levy and Richard Murnane: The New Division of Labor, George Akerlof, global supply chain, global value chain, hiring and firing, income inequality, information asymmetry, intermodal, inventory management, Jane Jacobs, Kenneth Rogoff, law of one price, loss aversion, low skilled workers, minimum wage unemployment, moral hazard, Network effects, new economy, occupational segregation, Paul Samuelson, performance metric, pre–internet, price discrimination, principal–agent problem, Rana Plaza, Richard Florida, Richard Thaler, Ronald Coase, shareholder value, Silicon Valley, statistical model, Steve Jobs, supply-chain management, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, ultimatum game, union organizing, women in the workforce, yield management

In contrast to assumptions of traditional economics that individuals maximize gains solely for themselves, a large empirical literature from psychology, decision science, and more recently behavioral economics reveals that people care not only about their own gains but also about those of others. In fact, people frequently gauge the magnitude of their own benefits relative to those of others. And they are often willing to sacrifice some of their own gains because of equally important beliefs about fairness. The “ultimatum game” is one of the best demonstrations of the importance of fairness in human interactions and has been extensively tested experimentally and in the field. The game is simple: two people are told there is a pot of money (say $10) to be split between them. One player gets the right to decide how to split it. The second player can accept or reject the first player’s decision. If the second player rejects it, no one receives anything.

Equally important, first players seem to understand this in advance, because they typically offer the second player between 40% and 50% of the pot.11 The results, which have been replicated many times in many different forms, attest to the importance of fairness, because they are based on one-round (nonrepeat) games where the incentives are high for the proposer to take as much as possible and for the responder to accept any offer. When ultimatum games are played in multiple-round scenarios, the incentives to share that pot only become higher. Fairness perceptions affect all kinds of real-world interactions and relationships. Relationships are an intrinsic part of the workplace, and fairness perceptions are therefore basic to how decisions are made within it. The factors driving wage setting arise not just from an employer’s consideration of the additional output a worker might provide if given a higher wage, but on the worker’s perceptions of the fairness of that wage.

For example, Daniel Kahneman, one of the pioneers of behavioral economics, showed that people’s perception of the fairness of a wage cut depends on why they feel it was done: cuts driven by increases in unemployment (and therefore more people looking for work) are viewed as unfair; a company that cuts wages because it is on the brink of bankruptcy is judged more favorably. Like the proposer in the ultimatum game, managers seem to understand this and seldom cut nominal wages in practice.12 Similarly, fairness considerations about compensation depend not only on how much I think I deserve to be paid on an absolute basis (given my experience, education, skills), but also on what I am paid relative to others. Who are relevant comparison groups? It depends on where I am when making the appraisal. If I am looking for a job, my assessment is based on what I see in the labor market—as predicted by traditional economic theory.


pages: 297 words: 84,009

Big Business: A Love Letter to an American Anti-Hero by Tyler Cowen

23andMe, Affordable Care Act / Obamacare, augmented reality, barriers to entry, Bernie Sanders, bitcoin, blockchain, Bretton Woods, cloud computing, cognitive dissonance, corporate governance, corporate social responsibility, correlation coefficient, creative destruction, crony capitalism, cryptocurrency, dark matter, David Brooks, David Graeber, don't be evil, Donald Trump, Elon Musk, employer provided health coverage, experimental economics, Filter Bubble, financial innovation, financial intermediation, global reserve currency, global supply chain, Google Glasses, income inequality, Internet of things, invisible hand, Jeff Bezos, late fees, Mark Zuckerberg, mobile money, money market fund, mortgage debt, Network effects, new economy, Nicholas Carr, obamacare, offshore financial centre, passive investing, payday loans, peer-to-peer lending, Peter Thiel, pre–internet, price discrimination, profit maximization, profit motive, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, Ronald Coase, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Nature of the Firm, Tim Cook: Apple, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, ultimatum game, WikiLeaks, women in the workforce, World Values Survey, Y Combinator

CROSS-CULTURAL GAME THEORY Another body of evidence considers how people from different cultures behave in economic games based on the choice to cooperate or not. Harvard anthropologist Joseph Henrich, for instance, has made progress on understanding the cross-cultural variation in the ultimatum game. In this two-player game, one player proposes the distribution of a sum of money between the two participants, such as by specifying 50-50. Yet if the initial offer is perceived as too unfair, the responder has the option of declining it, leading to no reward for either party. Henrich conducted an extensive study of the ultimatum game among the Machiguenga, a people who live in the Peruvian Amazon. They have relatively little market activity, not much in the way of formal business, and a low level of political complexity. They live in small, somewhat isolated groups, and Henrich writes that “cooperation above the family level is almost unknown, except for cooperative fish poisoning,” which is their method of catching fish.14 Henrich and his collaborators have extended this research to look at game-playing behavior across a broader number of societies and also with a broader number of games.

“U.S. and Global Imbalances: Can Dark Matter Prevent a Big Bang?” Working paper, John F. Kennedy School of Government, Harvard University. Henle, Christine A., Brian R. Dineen, and Michelle K. Duffy. 2017. “Assessing Intentional Resume Deception: Development and Nomological Network of a Resume Fraud Measure.” Journal of Business and Psychology, published online December 16, 2017. Henrich, Joseph. 2000. “Does Culture Matter in Economic Behavior? Ultimatum Game Bargaining Among the Machiguenga of the Peruvian Amazon.” American Economic Review 90, no. 4 (September): 973–979. Henrich, Joseph, Robert Boyd, Samuel Bowles, Colin Camerer, Ernst Fehr, and Herbert Gintis, editors. 2004. Foundations of Human Sociality: Economic Experiments and Ethnographic Evidence from Fifteen Small-Scale Societies. Oxford: Oxford University Press. Henrich, Joseph, et al. 2006.


pages: 280 words: 85,091

The Wisdom of Psychopaths: What Saints, Spies, and Serial Killers Can Teach Us About Success by Kevin Dutton

Asperger Syndrome, Bernie Madoff, business climate, corporate governance, corporate social responsibility, delayed gratification, epigenetics, Fellow of the Royal Society, G4S, impulse control, iterative process, John Nash: game theory, meta analysis, meta-analysis, Nicholas Carr, Norman Mailer, place-making, RAND corporation, Ronald Reagan, Steve Jobs, Steven Pinker, theory of mind, ultimatum game

In 2010, Hideki Ohira, a psychologist at Nagoya University, and his doctoral student Takahiro Osumi validated Colman’s theory for real. Psychopaths, they discovered, under certain extraordinary circumstances make better financial decisions than the rest of us, for precisely the reason that Colman had so elegantly demonstrated. They behave in a manner that would otherwise appear irrational. To demonstrate, Ohira and Osumi deployed the ultimatum game—a paradigm widely used in the field of neuroeconomics, which explores, broadly speaking, the way we evaluate primarily monetary, but also certain other types of gain. The game involves two players interacting to decide how a sum of money they are given should be divided. The first player proposes a solution. The second player decides whether or not to accept the offer. If the second player decides to reject it, then both of the protagonists get nothing.

Take a look at figure 3.2 and you’ll notice something interesting about the game. The offer that player 1 puts on the table can either be fair or unfair. They can propose to split the money, say, 50-50. Or alternatively, say, 80–20. Now, usually what happens is this. As proposals start approaching the 70-30 mark (in favor of player 1), player 2 goes into rejection mode.3 After all, it’s not just about the money. There’s a principle at stake here, too! Figure 3.2. The ultimatum game (1 = Player 1; 2 = Player 2; F = fair; U = unfair; A = accept; R = reject) But psychopaths, Ohira and Osumi discovered, play the game rather differently. Not only do they show greater willingness to accept unfair offers, favoring simple economic utility over the exigencies of punishment and ego preservation, they are much less bothered by inequity. On measures of electrodermal activity (a reliable index of stress based on the autonomic response of our sweat glands), the difference between psychopaths and other volunteers was telling, to say the least.

Clare Wilson, “Antisocial Personality Disorder: An Evolutionary Game Theory Analysis,” Legal and Criminological Psychology 2, no. 1 (1997): 23–34, doi:10.1111/j.2044-8333.1997.tb00330.x. 5 In 2010, Hideki Ohira, a psychologist at Nagoya University … See Takahiro Osumi and Hideki Ohira, “The Positive Side of Psychopathy: Emotional Detachment in Psychopathy and Rational Decision-Making in the Ultimatum Game,” Personality and Individual Differences 49, no. 5 (2010): 451–56. 6 “To subdue the enemy without fighting …” This quote originates in Sun Tzu’s much-celebrated work of military strategy, The Art of War. See The Art of War by Sun Tzu—Special Edition, trans. and ed. Lionel Giles (1910; repr. El Paso, TX: El Paso Norte Press, 2005). 7 One observes a still similar dynamic in monkeys today … For the latest on altruistic behavior in chimpanzees, see Victoria Horner, J.


pages: 190 words: 53,409

Success and Luck: Good Fortune and the Myth of Meritocracy by Robert H. Frank

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Amazon Mechanical Turk, American Society of Civil Engineers: Report Card, attribution theory, availability heuristic, Branko Milanovic, Capital in the Twenty-First Century by Thomas Piketty, carried interest, Daniel Kahneman / Amos Tversky, David Brooks, deliberate practice, en.wikipedia.org, endowment effect, experimental subject, framing effect, full employment, hindsight bias, If something cannot go on forever, it will stop - Herbert Stein's Law, income inequality, invisible hand, labor-force participation, lake wobegon effect, loss aversion, minimum wage unemployment, Network effects, Paul Samuelson, Report Card for America’s Infrastructure, Richard Thaler, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Rory Sutherland, selection bias, side project, sovereign wealth fund, Steve Jobs, The Wealth of Nations by Adam Smith, Tim Cook: Apple, ultimatum game, Vincenzo Peruggia: Mona Lisa, winner-take-all economy

Both cognitive errors also make it more difficult to raise the revenue needed to sustain the environments we were lucky to be born into. That’s because overlooking luck’s role makes those who’ve succeeded at the highest levels feel much more entitled to keep the lion’s share of the income they’ve earned. One piece of evidence for this claim comes from laboratory experiments involving bargaining games that are played between strangers. One version, the “ultimatum game,” has two players, the proposer and the responder. The proposer is given a sum of money—say $100—and told to propose a division of it between himself and the responder. Any combination that adds up to $100 is allowed, provided the responder is offered at least $1. The responder can then either accept the offer, in which case the money is distributed as proposed; or he can reject it, in which case the $100 goes back to the experimenter and each player gets zero.

., 4 Romney, Mitt, 84 RJR Nabisco, 51 Rosen, Sherwin, 46 S&P 500, 53 sadism, 122 Safer, Morley, 137 Sagan, Carl, 67 sales tax, 158, 159 Salomon Brothers, xiii same-sex marriage, 106–8 Sams, Jack, 35 Samuelson, Paul, 71 Saracini, Kirsten, 135 SATs, 32, 88 Scandinavian countries, 20 Schwartz, Barry, 48 Schwarzman, Stephen, 103, 104, 106 Scrabble, 82 Seattle Computer Products, 35 Seles, Monica, 46 self-control problems, 75–77 self-interest, 130 Seligman, Martin, 102 shipping costs, 42 60 Minutes, 135 skill premium, 53 Slate, 117 Smith, Adam, 52, 115, 132 Smith College, 58 Sony, 44 Soviet Union collapse, 107 Spanish National Lottery, 69 Stanford University, xv, 70 starve the beast strategy, 97 Stein, Herb, 105 Stewart, Rod, 103 student debt, 87 Success Equation, The, 69 sudden cardiac death/arrest, 2, 147 Supreme Court campaign finance rulings, 104 Surowiecki, James, 103 Sutton, Willie, 98 Switzerland, 20 tailwinds, 80, 81 Taleb, Nassim Nicholas, 72 Tangier, 87 tariff barriers, 42 tax accounting, 9, 43 tax resistance, 107 taxable consumption, 118, 159 taxation as theft, 96, 97 Thaler, Richard, 177 Tierney, John, 75 toil index, 113, 114 top marginal tax rates, declining, 88, 89 track and field records, 63, 64 Transparency International, 19 Tudor, Fredric, 36, 37 Turbo Tax, 10 Tversky, Amos, 70 Uffizi Gallery, 22 ultimatum game, 93–95 University of California at Berkeley, xv, 25, 137 University of Wisconsin, 25 Unlimited Savings Allowance Tax, 126 Valenti, Aurora, 19 value-added tax, 158, 159 Varney, Stuart, 3, 4, 7 VHS, 44, 45 Viard, Alan, 127 Wall Street, xiii Warren, Elizabeth, 12 waste, defined, 16 Watts, Duncan, 22, 23, 30, 31 Wealth of Nations, 52, 132 wedding costs, 14, 110, 111 Wedding March, 106 Weightman, Gavin, 37 White, E.


pages: 1,351 words: 385,579

The Better Angels of Our Nature: Why Violence Has Declined by Steven Pinker

1960s counterculture, affirmative action, Alan Turing: On Computable Numbers, with an Application to the Entscheidungsproblem, Albert Einstein, availability heuristic, Berlin Wall, Bonfire of the Vanities, British Empire, Broken windows theory, business cycle, California gold rush, Cass Sunstein, citation needed, clean water, cognitive dissonance, colonial rule, Columbine, computer age, conceptual framework, correlation coefficient, correlation does not imply causation, crack epidemic, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Brooks, delayed gratification, demographic transition, desegregation, Doomsday Clock, Douglas Hofstadter, Edward Glaeser, en.wikipedia.org, European colonialism, experimental subject, facts on the ground, failed state, first-past-the-post, Flynn Effect, food miles, Francis Fukuyama: the end of history, fudge factor, full employment, George Santayana, ghettoisation, Gini coefficient, global village, Henri Poincaré, Hobbesian trap, humanitarian revolution, impulse control, income inequality, informal economy, Intergovernmental Panel on Climate Change (IPCC), invention of the printing press, Isaac Newton, lake wobegon effect, libertarian paternalism, long peace, longitudinal study, loss aversion, Marshall McLuhan, mass incarceration, McMansion, means of production, mental accounting, meta analysis, meta-analysis, Mikhail Gorbachev, moral panic, mutually assured destruction, Nelson Mandela, open economy, Peace of Westphalia, Peter Singer: altruism, QWERTY keyboard, race to the bottom, Ralph Waldo Emerson, random walk, Republic of Letters, Richard Thaler, Ronald Reagan, Rosa Parks, Saturday Night Live, security theater, Skype, Slavoj Žižek, South China Sea, Stanford marshmallow experiment, Stanford prison experiment, statistical model, stem cell, Steven Levy, Steven Pinker, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, theory of mind, transatlantic slave trade, Turing machine, twin studies, ultimatum game, uranium enrichment, Vilfredo Pareto, Walter Mischel, WikiLeaks, women in the workforce, zero-sum game

Self-help justice: Black, 1983; Daly & Wilson, 1988. 194. Vengeful anger as a recalibration mechanism: Sell, Tooby, & Cosmides, 2009. 195. Target must know he has been singled out: Gollwitzer & Denzler, 2009. 196. Audience effects on revenge: Bolton & Zwick, 1995; Brown, 1968; Kim, Smirth, & Brigham, 1998. 197. Audience effects on fights: Felson, 1982. 198. Ultimatum game: Bolton & Zwick, 1995; Fehr & Gächter, 2000; Ridley, 1997; Sanfey et al., 2003. 199. Ultimatum game in the scanner: Sanfey et al., 2003. 200. Moralization Gap and escalation of revenge: Baumeister, 1997. 201. Boys in backseat: D. Gilbert, “He who cast the first stone probably didn’t,” New York Times, Jul. 24, 2006. 202. Two eyes for an eye: Shergill, Bays, Frith, & Wolpert, 2003. 203. Just deserts as justification of criminal punishment: Kaplan, 1973. 204.

Experiments have shown that people punish more severely, even at a price that is greater than the amount out of which they have been cheated, when they think an audience is watching.196 And as we saw, men are twice as likely to escalate an argument into a fight when spectators are around.197 The effectiveness of revenge as a deterrent can explain actions that are otherwise puzzling. The rational actor theory, popular in economics and political science, has long been embarrassed by people’s behavior in yet another game, the Ultimatum game.198 One participant, the proposer, gets a sum of money to divide between himself and another participant, the acceptor, who can take it or leave it. If he leaves it, neither side gets anything. A rational proposer would keep the lion’s share; a rational respondent would accept the remaining crumbs, no matter how small, because part of a loaf is better than none. In actual experiments the proposer tends to offer almost half of the jackpot, and the respondent doesn’t settle for much less than half, even though turning down a smaller share is an act of spite that punishes both participants.

In actual experiments the proposer tends to offer almost half of the jackpot, and the respondent doesn’t settle for much less than half, even though turning down a smaller share is an act of spite that punishes both participants. Why do actors in these experiments behave so irrationally? The rational actor theory had neglected the psychology of revenge. When a proposal is too stingy, the respondent gets angry—indeed, the neuroimaging study I mentioned earlier, in which the insula lit up in anger, used the Ultimatum game to elicit it.199 The anger impels the respondent to punish the proposer in revenge. Most proposers anticipate the anger, so they make an offer that is just generous enough to be accepted. When they don’t have to worry about revenge, because the rules of the game are changed and the acceptor has to accept the split no matter what (a variation called the Dictator game), the offer is stingier.


pages: 403 words: 111,119

Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist by Kate Raworth

"Robert Solow", 3D printing, Asian financial crisis, bank run, basic income, battle of ideas, Berlin Wall, bitcoin, blockchain, Branko Milanovic, Bretton Woods, Buckminster Fuller, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, choice architecture, clean water, cognitive bias, collapse of Lehman Brothers, complexity theory, creative destruction, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, dematerialisation, disruptive innovation, Douglas Engelbart, Douglas Engelbart, en.wikipedia.org, energy transition, Erik Brynjolfsson, Ethereum, ethereum blockchain, Eugene Fama: efficient market hypothesis, experimental economics, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, Financial Instability Hypothesis, full employment, global supply chain, global village, Henri Poincaré, hiring and firing, Howard Zinn, Hyman Minsky, income inequality, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, land reform, land value tax, Landlord’s Game, loss aversion, low skilled workers, M-Pesa, Mahatma Gandhi, market fundamentalism, Martin Wolf, means of production, megacity, mobile money, Mont Pelerin Society, Myron Scholes, neoliberal agenda, Network effects, Occupy movement, off grid, offshore financial centre, oil shale / tar sands, out of africa, Paul Samuelson, peer-to-peer, planetary scale, price mechanism, quantitative easing, randomized controlled trial, Richard Thaler, Ronald Reagan, Second Machine Age, secular stagnation, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, smart cities, smart meter, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, statistical model, Steve Ballmer, The Chicago School, The Great Moderation, the map is not the territory, the market place, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, Torches of Freedom, trickle-down economics, ultimatum game, universal basic income, Upton Sinclair, Vilfredo Pareto, wikimedia commons

And it is the combination of these two traits that leads to the success of large-scale cooperation in society.23 No wonder rating and review systems are so popular in the otherwise anonymous online marketplace. From eBay to Etsy, they turn each participant’s track record into their trading reputation, revealing who can be trusted, so allowing conditional cooperators to find each other and thrive even in the presence of free riders.24 Our readiness to cooperate and to punish defectors has been most famously demonstrated in the Ultimatum Game, which has been played in many societies beyond Western, educated, industrial, rich and democratic ones. Two players – a proposer and responder who are anonymous to each other – are offered a sum of money to share, typically equivalent to two days’ earnings. The proposer suggests how to divide it and, if the responder accepts that division, they each receive their respective shares; if the responder rejects the proposal, however, they both go empty-handed.

These five shifts provide preparatory sketches for humanity’s twenty-first-century portrait, but the work is still far from finished. First, we need to understand more about our economic selves beyond how we behave around money. Just as WEIRD students turn out to behave unlike most other people, so too money may turn out to affect our behaviour quite differently to the way that most other things that matter to us do. How might the Ultimatum Game be played if those involved were asked to share not money but food, water, healthcare, time or political voice? It is deeply unlikely that money invokes the very same sense of fairness as do these other things that we value deeply. In addition, we need to understand a good deal more about who all of us are, not just the WEIRD ones. A greater diversity in experimental research will no doubt reveal some more fascinating differences between peoples and cultures, but we may ultimately discover that – in the words of the late British MP Jo Cox – we have ‘far more in common with each other than things that divide us’.47 How, then, can the insights from these five shifts in our self-portrait be harnessed in ways that can help to bring all of humanity into the Doughnut?

., 6 micro-businesses, 9, 173, 178 microeconomics, 132–4 microgrids, 187–8 Micronesia, 153 Microsoft, 231 middle class, 6, 46, 58 middle-income countries, 90, 164, 168, 173, 180, 226, 254 migration, 82, 89–90, 166, 195, 199, 236, 266, 286 Milanovic, Branko, 171 Mill, John Stuart, 33–4, 73, 97, 250, 251, 283, 284, 288 Millo, Yuval, 101 minimum wage, 82, 88, 176 Minsky, Hyman, 87, 146 Mises, Ludwig von, 66 mission zero, 217 mobile banking, 199–200 mobile phones, 222 Model T revolution, 277–8 Moldova, 199 Mombasa, Kenya, 185–6 Mona Lisa (da Vinci), 94 money creation, 87, 164, 177, 182–8, 205 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 Monoculture (Michaels), 6 Monopoly, 149 Mont Pelerin Society, 67, 93 Moral Consequences of Economic Growth, The (Friedman), 258 moral vacancy, 41 Morgan, Mary, 99 Morogoro, Tanzania, 121 Moyo, Dambisa, 258 Muirhead, Sam, 230, 231 MultiCapital Scorecard, 241 Murphy, David, 264 Murphy, Richard, 185 musical tastes, 110 Myriad Genetics, 196 N national basic income, 177 Native Americans, 115, 116, 282 natural capital, 7, 116, 269 Natural Economic Order, The (Gessel), 274 Nedbank, 216 negative externalities, 213 negative interest rates, 275–6 neoclassical economics, 134, 135 neoliberalism, 7, 62–3, 67–70, 81, 83, 84, 88, 93, 143, 170, 176 Nepal, 181, 199 Nestlé, 217 Netherlands, 211, 235, 224, 226, 238, 277 networks, 110–11, 117, 118, 123, 124–6, 174–6 neuroscience, 12–13 New Deal, 37 New Economics Foundation, 278, 283 New Year’s Day, 124 New York, United States, 9, 41, 55 Newlight Technologies, 224, 226, 293 Newton, Isaac, 13, 15–17, 32–3, 95, 97, 129, 131, 135–7, 142, 145, 162 Nicaragua, 196 Nigeria, 164 nitrogen, 49, 52, 212–13, 216, 218, 221, 226, 298 ‘no pain, no gain’, 163, 167, 173, 204, 209 Nobel Prize, 6–7, 43, 83, 101, 167 Norway, 281 nudging, 112, 113, 114, 123–6 O Obama, Barack, 41, 92 Oberlin, Ohio, 239, 240–41 Occupy movement, 40, 91 ocean acidification, 45, 46, 52, 155, 242, 298 Ohio, United States, 190, 239 Okun, Arthur, 37 onwards and upwards, 53 Open Building Institute, 196 Open Source Circular Economy (OSCE), 229–32 open systems, 74 open-source design, 158, 196–8, 265 open-source licensing, 204 Organisation for Economic Co-operation and Development (OECD), 38, 210, 255–6, 258 Origin of Species, The (Darwin), 14 Ormerod, Paul, 110, 111 Orr, David, 239 Ostrom, Elinor, 83, 84, 158, 160, 181–2 Ostry, Jonathan, 173 OSVehicle, 231 overseas development assistance (ODA), 198–200 ownership of wealth, 177–82 Oxfam, 9, 44 Oxford University, 1, 36 ozone layer, 9, 50, 115 P Pachamama, 54, 55 Pakistan, 124 Pareto, Vilfredo, 165–6, 175 Paris, France, 290 Park 20|20, Netherlands, 224, 226 Parker Brothers, 149 Patagonia, 56 patents, 195–6, 197, 204 patient capital, 235 Paypal, 192 Pearce, Joshua, 197, 203–4 peer-to-peer networks, 187, 192, 198, 203, 292 People’s QE, 184–5 Perseus, 244 Persia, 13 Peru, 2, 105–6 Phillips, Adam, 283 Phillips, William ‘Bill’, 64–6, 75, 142, 262 phosphorus, 49, 52, 212–13, 218, 298 Physiocrats, 73 Pickett, Kate, 171 pictures, 12–25 Piketty, Thomas, 169 Playfair, William, 16 Poincaré, Henri, 109, 127–8 Polanyi, Karl, 82, 272 political economy, 33–4, 42 political funding, 91–2, 171–2 political voice, 43, 45, 51–2, 77, 117 pollution, 29, 45, 52, 85, 143, 155, 206–17, 226, 238, 242, 254, 298 population, 5, 46, 57, 155, 199, 250, 252, 254 Portugal, 211 post-growth society, 250 poverty, 5, 9, 37, 41, 50, 88, 118, 148, 151 emotional, 283 and inequality, 164–5, 168–9, 178 and overseas development assistance (ODA), 198–200 and taxation, 277 power, 91–92 pre-analytic vision, 21–2 prescription medicines, 123 price-takers, 132 prices, 81, 118–23, 131, 160 Principles of Economics (Mankiw), 34 Principles of Economics (Marshall), 17, 98 Principles of Political Economy (Mill), 288 ProComposto, 226 Propaganda (Bernays), 107 public relations, 107, 281 public spending v. investment, 276 public–private patents, 195 Putnam, Robert, 76–7 Q quantitative easing (QE), 184–5 Quebec, 281 Quesnay, François, 16, 73 R Rabot, Ghent, 236 Rancière, Romain, 172 rating and review systems, 105 rational economic man, 94–103, 109, 111, 112, 126, 282 Reagan, Ronald, 67 reciprocity, 103–6, 117, 118, 123 reflexivity of markets, 144 reinforcing feedback loops, 138–41, 148, 250, 271 relative decoupling, 259 renewable energy biomass energy, 118, 221 and circular economy, 221, 224, 226, 235, 238–9, 274 and commons, 83, 85, 185, 187–8, 192, 203, 264 geothermal energy, 221 and green growth, 257, 260, 263, 264, 267 hydropower, 118, 260, 263 pricing, 118 solar energy, see solar energy wave energy, 221 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 rentier sector, 180, 183, 184 reregulation, 82, 87, 269 resource flows, 175 resource-intensive lifestyles, 46 Rethinking Economics, 289 Reynebeau, Guy, 237 Ricardo, David, 67, 68, 73, 89, 250 Richardson, Katherine, 53 Rifkin, Jeremy, 83, 264–5 Rise and Fall of the Great Powers, The (Kennedy), 279 risk, 112, 113–14 Robbins, Lionel, 34 Robinson, James, 86 Robinson, Joan, 142 robots, 191–5, 237, 258, 278 Rockefeller Foundation, 135 Rockford, Illinois, 179–80 Rockström, Johan, 48, 55 Roddick, Anita, 232–4 Rogoff, Kenneth, 271, 280 Roman Catholic Church, 15, 19 Rombo, Tanzania, 190 Rome, Ancient, 13, 48, 154 Romney, Mitt, 92 Roosevelt, Franklin Delano, 37 rooted membership, 190 Rostow, Walt, 248–50, 254, 257, 267–70, 284 Ruddick, Will, 185 rule of thumb, 113–14 Ruskin, John, 42, 223 Russia, 200 rust belt, 90, 239 S S curve, 251–6 Sainsbury’s, 56 Samuelson, Paul, 17–21, 24–5, 38, 62–7, 70, 74, 84, 91, 92, 93, 262, 290–91 Sandel, Michael, 41, 120–21 Sanergy, 226 sanitation, 5, 51, 59 Santa Fe, California, 213 Santinagar, West Bengal, 178 São Paolo, Brazil, 281 Sarkozy, Nicolas, 43 Saumweder, Philipp, 226 Scharmer, Otto, 115 Scholes, Myron, 100–101 Schumacher, Ernst Friedrich, 42, 142 Schumpeter, Joseph, 21 Schwartz, Shalom, 107–9 Schwarzenegger, Arnold, 163, 167, 204 ‘Science and Complexity’ (Weaver), 136 Scotland, 57 Seaman, David, 187 Seattle, Washington, 217 second machine age, 258 Second World War (1939–45), 18, 37, 70, 170 secular stagnation, 256 self-interest, 28, 68, 96–7, 99–100, 102–3 Selfish Society, The (Gerhardt), 283 Sen, Amartya, 43 Shakespeare, William, 61–3, 67, 93 shale gas, 264, 269 Shang Dynasty, 48 shareholders, 82, 88, 189, 191, 227, 234, 273, 292 sharing economy, 264 Sheraton Hotel, Boston, 3 Siegen, Germany, 290 Silicon Valley, 231 Simon, Julian, 70 Sinclair, Upton, 255 Sismondi, Jean, 42 slavery, 33, 77, 161 Slovenia, 177 Small Is Beautiful (Schumacher), 42 smart phones, 85 Smith, Adam, 33, 57, 67, 68, 73, 78–9, 81, 96–7, 103–4, 128, 133, 160, 181, 250 social capital, 76–7, 122, 125, 172 social contract, 120, 125 social foundation, 10, 11, 44, 45, 49, 51, 58, 77, 174, 200, 254, 295–6 social media, 83, 281 Social Progress Index, 280 social pyramid, 166 society, 76–7 solar energy, 59, 75, 111, 118, 187–8, 190 circular economy, 221, 222, 223, 224, 226–7, 239 commons, 203 zero-energy buildings, 217 zero-marginal-cost revolution, 84 Solow, Robert, 135, 150, 262–3 Soros, George, 144 South Africa, 56, 177, 214, 216 South Korea, 90, 168 South Sea Bubble (1720), 145 Soviet Union (1922–91), 37, 67, 161, 279 Spain, 211, 238, 256 Spirit Level, The (Wilkinson & Pickett), 171 Sraffa, Piero, 148 St Gallen, Switzerland, 186 Stages of Economic Growth, The (Rostow), 248–50, 254 stakeholder finance, 190 Standish, Russell, 147 state, 28, 33, 69–70, 78, 82, 160, 176, 180, 182–4, 188 and commons, 85, 93, 197, 237 and market, 84–6, 200, 281 partner state, 197, 237–9 and robots, 195 stationary state, 250 Steffen, Will, 46, 48 Sterman, John, 66, 143, 152–4 Steuart, James, 33 Stiglitz, Joseph, 43, 111, 196 stocks and flows, 138–41, 143, 144, 152 sub-prime mortgages, 141 Success to the Successful, 148, 149, 151, 166 Sugarscape, 150–51 Summers, Larry, 256 Sumner, Andy, 165 Sundrop Farms, 224–6 Sunstein, Cass, 112 supply and demand, 28, 132–6, 143, 253 supply chains, 10 Sweden, 6, 255, 275, 281 swishing, 264 Switzerland, 42, 66, 80, 131, 186–7, 275 T Tableau économique (Quesnay), 16 tabula rasa, 20, 25, 63, 291 takarangi, 54 Tanzania, 121, 190, 202 tar sands, 264, 269 taxation, 78, 111, 165, 170, 176, 177, 237–8, 276–9 annual wealth tax, 200 environment, 213–14, 215 global carbon tax, 201 global financial transactions tax, 201, 235 land-value tax, 73, 149, 180 non-renewable resources, 193, 237–8, 278–9 People’s QE, 185 tax relief v. tax justice, 23, 276–7 TED (Technology, Entertainment, Design), 202, 258 Tempest, The (Shakespeare), 61, 63, 93 Texas, United States, 120 Thailand, 90, 200 Thaler, Richard, 112 Thatcher, Margaret, 67, 69, 76 Theory of Moral Sentiments (Smith), 96 Thompson, Edward Palmer, 180 3D printing, 83–4, 192, 198, 231, 264 thriving-in-balance, 54–7, 62 tiered pricing, 213–14 Tigray, Ethiopia, 226 time banking, 186 Titmuss, Richard, 118–19 Toffler, Alvin, 12, 80 Togo, 231, 292 Torekes, 236–7 Torras, Mariano, 209 Torvalds, Linus, 231 trade, 62, 68–9, 70, 89–90 trade unions, 82, 176, 189 trademarks, 195, 204 Transatlantic Trade and Investment Partnership (TTIP), 92 transport, 59 trickle-down economics, 111, 170 Triodos, 235 Turkey, 200 Tversky, Amos, 111 Twain, Mark, 178–9 U Uganda, 118, 125 Ulanowicz, Robert, 175 Ultimatum Game, 105, 117 unemployment, 36, 37, 276, 277–9 United Kingdom Big Bang (1986), 87 blood donation, 118 carbon dioxide emissions, 260 free trade, 90 global material footprints, 211 money creation, 182 MONIAC (Monetary National Income Analogue Computer), 64–5, 75, 142, 262 New Economics Foundation, 278, 283 poverty, 165, 166 prescription medicines, 123 wages, 188 United Nations, 55, 198, 204, 255, 258, 279 G77 bloc, 55 Human Development Index, 9, 279 Sustainable Development Goals, 24, 45 United States American Economic Association meeting (2015), 3 blood donation, 118 carbon dioxide emissions, 260 Congress, 36 Council of Economic Advisers, 6, 37 Earning by Learning, 120 Econ 101 course, 8, 77 Exxon Valdez oil spill (1989), 9 Federal Reserve, 87, 145, 146, 271, 282 free trade, 90 Glass–Steagall Act (1933), 87 greenhouse gas emissions, 153 global material footprint, 211 gross national product (GNP), 36–40 inequality, 170, 171 land-value tax, 73, 149, 180 political funding, 91–2, 171 poverty, 165, 166 productivity and employment, 193 rust belt, 90, 239 Transatlantic Trade and Investment Partnership (TTIP), 92 wages, 188 universal basic income, 200 University of Berkeley, 116 University of Denver, 160 urbanisation, 58–9 utility, 35, 98, 133 V values, 6, 23, 34, 35, 42, 117, 118, 121, 123–6 altruism, 100, 104 anthropocentric, 115 extrinsic, 115 fluid, 28, 102, 106–9 and networks, 110–11, 117, 118, 123, 124–6 and nudging, 112, 113, 114, 123–6 and pricing, 81, 120–23 Veblen, Thorstein, 82, 109, 111, 142 Venice, 195 verbal framing, 23 Verhulst, Pierre, 252 Victor, Peter, 270 Viner, Jacob, 34 virtuous cycles, 138, 148 visual framing, 23 Vitruvian Man, 13–14 Volkswagen, 215–16 W Wacharia, John, 186 Wall Street, 149, 234, 273 Wallich, Henry, 282 Walras, Léon, 131, 132, 133–4, 137 Ward, Barbara, 53 Warr, Benjamin, 263 water, 5, 9, 45, 46, 51, 54, 59, 79, 213–14 wave energy, 221 Ways of Seeing (Berger), 12, 281 Wealth of Nations, The (Smith), 74, 78, 96, 104 wealth ownership, 177–82 Weaver, Warren, 135–6 weightless economy, 261–2 WEIRD (Western, educated, industrialised, rich, democratic), 103–5, 110, 112, 115, 117, 282 West Bengal, India, 124, 178 West, Darrell, 171–2 wetlands, 7 whale hunting, 106 Wiedmann, Tommy, 210 Wikipedia, 82, 223 Wilkinson, Richard, 171 win–win trade, 62, 68, 89 wind energy, 75, 118, 196, 202–3, 221, 233, 239, 260, 263 Wizard of Oz, The, 241 Woelab, 231, 293 Wolf, Martin, 183, 266 women’s rights, 33, 57, 107, 160, 201 and core economy, 69, 79–81 education, 57, 124, 178, 198 and land ownership, 178 see also gender equality workers’ rights, 88, 91, 269 World 3 model, 154–5 World Bank, 6, 41, 119, 164, 168, 171, 206, 255, 258 World No Tobacco Day, 124 World Trade Organization, 6, 89 worldview, 22, 54, 115 X xenophobia, 266, 277, 286 Xenophon, 4, 32, 56–7, 160 Y Yandle, Bruce, 208 Yang, Yuan, 1–3, 289–90 yin yang, 54 Yousafzai, Malala, 124 YouTube, 192 Yunnan, China, 56 Z Zambia, 10 Zanzibar, 9 Zara, 276 Zeitvorsoge, 186–7 zero environmental impact, 217–18, 238, 241 zero-hour contracts, 88 zero-humans-required production, 192 zero-interest loans, 183 zero-marginal-cost revolution, 84, 191, 264 zero-waste manufacturing, 227 Zinn, Howard, 77 PICTURE ACKNOWLEDGEMENTS Illustrations are reproduced by kind permission of: archive.org


pages: 523 words: 111,615

The Economics of Enough: How to Run the Economy as if the Future Matters by Diane Coyle

"Robert Solow", accounting loophole / creative accounting, affirmative action, bank run, banking crisis, Berlin Wall, bonus culture, Branko Milanovic, BRICs, business cycle, call centre, Cass Sunstein, central bank independence, collapse of Lehman Brothers, conceptual framework, corporate governance, correlation does not imply causation, Credit Default Swap, deindustrialization, demographic transition, Diane Coyle, different worldview, disintermediation, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Financial Instability Hypothesis, Francis Fukuyama: the end of history, George Akerlof, Gini coefficient, global supply chain, Gordon Gekko, greed is good, happiness index / gross national happiness, hedonic treadmill, Hyman Minsky, If something cannot go on forever, it will stop - Herbert Stein's Law, illegal immigration, income inequality, income per capita, industrial cluster, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, knowledge economy, light touch regulation, low skilled workers, market bubble, market design, market fundamentalism, megacity, Network effects, new economy, night-watchman state, Northern Rock, oil shock, Pareto efficiency, principal–agent problem, profit motive, purchasing power parity, railway mania, rising living standards, Ronald Reagan, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, Steven Pinker, The Design of Experiments, The Fortune at the Bottom of the Pyramid, The Market for Lemons, The Myth of the Rational Market, The Spirit Level, transaction costs, transfer pricing, tulip mania, ultimatum game, University of East Anglia, web application, web of trust, winner-take-all economy, World Values Survey, zero-sum game

The trend toward greater inequality is, if not yet unsustainable, well on its way to being so. THE FAIRNESS INSTINCT The evidence for the existence of a fairness instinct in humans comes from psychological experiments, evolutionary psychology, and primatology. Some of the experimental results have become well known, thanks to the fashion for behavioral economics. One example is the “ultimatum game.” One of two players is given some cash to divide between the two of them. The second player can take or leave the offer, but if he rejects it, neither of them gets any money. Typically, offers that are too low are rejected, with the threshold being about a quarter or a third, even though the second player punishes themselves as well as the insufficiently generous first player. Much has been made of the fact that this contradicts the assumption in economics of rational self-interest—taken to its logical conclusion, this would suggest the second player should accept even a cent as better than nothing.

See nature European Union, 42, 59, 62, 162–63, 177, 219 Evolution of Cooperation, The (Axelrod), 118–19 “Evolution of Reciprocal Altruism, The” (Trivers), 118 externalities, 15, 70, 80, 211, 228–29, 249, 254 Facebook, 289 face-to-face contact, 7, 147, 165–68 fairness: altruism and, 118–22; antiglobalization and, 115; bankers and, 115, 133, 139, 143–44; behavioral econoics and, 116–17, 121; bonuses and, 87–88, 115, 139, 143–44, 193, 221, 223, 277–78, 295; capitalism and, 134, 137, 149; consequences for growth, 135–36; criticism of poor and, 142; democracy and, 141; emotion and, 118–19, 137; game theory and, 116–18, 121–22; government and, 121, 123, 131, 136; gratitude and, 118; growth and, 114–16, 121, 125, 127, 133–37; happiness and, 53; health issues and, 137–43; high salaries and, 130, 143–44, 193, 223, 277–78, 286, 296; inequality and, 115–16, 122–43; innate sense of, 114–19; innovation and, 121, 134; morals and, 116–20, 127, 131, 142, 144, 221; philosophy and, 114–15, 123; politics and, 114–16, 125–31, 135–36, 140–44; productivity and, 131, 135; Putnam on, 140–41; self-interest and, 114–22; social corrosiveness of, 139–44; social justice and, 31, 43, 53, 65, 123, 164, 224, 237, 286; statistics and, 115, 138; superstar effect and, 134; sustainability and, 115; technology and, 116, 131–34, 137; tit-for-tat response and, 118–19; trilemma of, 13–14, 230–36, 275; trust and, 139–44, 150, 157, 162, 172, 175–76; ultimatum game and, 116–17; unequal countries and, 124–30; wage penalties and, 133; well-being and, 137–43; World Values Survey and, 139 Fama, Eugene, 221–22 faxes, 252 Federal Reserve, 145 Ferguson, Niall, 100–101 financial crises: actions by governments and, 104–12; bubbles and, 3 (see also bubbles); capitalism and, 6–9 (see also capitalism); contracts and, 149–50; crashes and, 3, 28, 161, 244, 283; current, 54, 85, 90–91, 145; debt legacy of, 90–92; demographic implosion and, 95–100; goodwill and, 150; government debt and, 100–104; Great Depression and, 3, 28, 35, 61, 82, 150, 208, 281; growth debt and, 85–86; historical perspective on, 3–4; institutional blindness to, 87–88; intangible assets and, 149–50; intrusive regulatory practices and, 244; pension burden of, 92–95; as political crisis, 8–9; statistics of, 145; stimulus packages and, 91, 100–103, 111; structural change and, 25; total cost of current, 90–91; trust and, 88–89 (see also trust); weightless activities and, 150; welfare burden of, 92–95 Financial Times, 257 Fitzgerald, F.

See also gross domestic product (GDP); measurement Stein, Herbert, 104 Stern, Nicholas, 29, 60–61, 68, 72–74, 82 Stevenson, Betsey, 41 stewardship, 78, 80, 275 Stiglitz, Joseph, 37, 82, 202, 274 stimulus packages, 91, 100–103, 111 Strumpf, Koleman, 197 suicide, 44, 51, 279 superstar effect, 134 sustainability: Brundtlandt Report and, 77; cradle-to-grave social systems and, 104; defining, 24, 77–78, 80; economic, 8, 85–86, 89–90, 98, 100, 102, 104–5, 108, 111, 113, 136, 177, 183–85, 203, 233–34, 240, 244, 248, 261, 293; environmental, 38, 56, 59, 62, 65, 69, 71, 76, 112–13, 233; fairness and, 115; government debt and, 102, 104–12; growth and, 53, 57, 80–86, 89–90, 98, 100; Index of Sustainable Economic Welfare (ISEW) and, 36; kinds of, 25; social, 54, 71, 79, 114–16, 143, 151, 233, 237 Sweden, 141, 143, 172, 251 Switzerland, 125 Tabellini, Guido, 136 tacit knowledge, 166 taxes, 3, 12, 15; business investment and, 295; fairness and, 123, 127–28, 131, 135–36, 144; Golden Rule for, 93; increased future, 286–87; happiness and, 22–25, 40, 43; inequality and, 115–16, 123, 127–28, 131, 135–36; infrastructure spending and, 93; luxury goods and, 23; Medicare and, 93–94; nature and, 62, 71; pension burden and, 92–95; policy recommendations for, 279, 282–86, 289–90, 293–97; posterity and, 85–91, 94, 99, 103–5, 111–13; Social Security and, 93–94; thrift education and, 294–95; trust and, 171–76, 182, 191, 203; values and, 229, 235, 245, 248, 258; wasteful spending and, 23; welfare burden and, 92–95 technology: access to, 36; Boskin Commission and, 37; call centers and, 131, 133, 161; cities and, 165–70; computers and, 156; consumer electronics and, 36–37; cultural suspicion of growth and, 26–29; data explosion and, 205, 291; decreased cost of, 254; electrification and, 155–56; electronic monitoring, 252–53; e-mail, 252; Enlightenment and, 7; fairness and, 116, 131–34, 137; faxes, 252; fractal character of, 134; general purpose, 157; globalization and, 7, 160–65; governance and, 173–77; growth and, 268, 270–77, 287–93, 297; Gutenberg press, 7; happiness and, 24–25, 35–37, 44, 53–54; impact of, 7–8, 24–25, 35, 37, 252–54; Industrial Revolution and, 27, 149, 290, 297; innovation and, 6–8 (see also innovation); institutions and, 244–46, 251–54, 257–63; Internet, 155, 195, 245, 260, 273, 287–89, 291, 296; labor and, 132; measurement and, 181–85, 188–91, 194–201, 204–6; Moore’s Law and, 156; music industry and, 194–98; nature and, 69–72, 76–77, 80, 84; new energy, 6; online empowerment and, 287–88, 296; policy recommendations for, 268, 270, 273–77, 287–93, 297; politics and, 7–8, 16–17, 288–89; posterity and, 107; productivity and, 107–8, 157–59, 268; public domain and, 196; reinvention and, 14; Renaissance and, 7; smart cards, 252–53; software, 253; steam power, 155–57; structural change and, 268; superstar effect and, 134; telephony, 252; trust and, 7–8, 151, 155–61, 165, 170, 173–77; values and, 212–13, 216, 218, 233–34, 237–38; voters and, 288–89 Thatcher, Margaret, 93, 121, 211, 240, 245, 247–48 Theory of Justice (Rawls), 31 Theory of Moral Sentiments, A (Smith), 120 Theory of the Leisure Class, The (Veblen), 22–23 Thomson, William (Lord Kelvin), 187 time: shortage of, 204–7; Slow Movement and, 27–28, 205 tragedy of the commons, 80 transparency, 83, 164, 288, 296 Treatise on Human Nature (Hume), 120 trilemmas, 13–14, 230–36, 275 Trivers, Robert, 118 Trollope, Anthony, 33 trust: bankers and, 88–89, 145–50, 158, 161–64, 174, 176, 257; causality and, 154; challenge of building, 170–73; cities and, 165–70; civic cooperation and, 154; decline in, 5, 139–44; democracy and, 175; diversity and, 170–73; doctors and, 247; economic importance of, 152–57; efficiency and, 158–59; face-to-face contact and, 7, 147, 165–68; fraud and, 146–47, 150, 248; General Social Survey and, 140; globalization and, 149–51, 157, 160–70; goodwill and, 150; governance and, 151, 162–65, 173–77, 255–58; government and, 150, 157, 162, 172, 175–76, 247; gross domestic product (GDP) and, 157, 160; growth and, 152–56, 160, 174; health issues and, 172; innovation and, 157; intangible assets and, 149–52, 157, 161; measurement of, 152–57; morals and, 149, 174; paradox of prosperity and, 174; Pew surveys and, 140; politics and, 154, 162–64, 173–77, 285–87; productivity and, 156–59, 162, 166–67, 170, 174; Putnam on, 140–41, 152–54; reform and, 162–64, 176–77; social capital and, 5, 151–57, 168–74, 177; specialization and, 160–61; statistics and, 154; teachers and, 247; technology and, 7–8, 151, 155–61, 165, 170, 173–77; voter turnout and, 175; weightless activities and, 150 Tullock, Gordon, 242 Turner, Ted, 33 Twitter, 289 Uganda, 147 ultimatum game, 116–17 unemployment, 3, 10, 43, 51, 56, 89, 107, 169, 207, 212–13, 243 unions, 15, 51, 224, 249 United Kingdom, 1, 4, 10, 66; bailouts and, 91; British Social Attitudes and, 140–41; Brown and, 93; debt of, 103–4; diversity and, 172; fairness and, 115–16, 122, 125–26, 130, 139–43; Glastonbury Festival and, 197; inequality in, 122, 125–30; institutions and, 240, 258, 260; measurement and, 198, 203, 206–7; National Health Service and, 285; National Statistics and, 203; negative savings rate in, 105; policy recommendations and, 280–88; posterity and, 93, 95, 103, 105, 111; public deliberation and, 258–59; public sector and, 248; retirement age and, 107; savings rate in, 280–82; Thatcher and, 93, 121, 211, 240, 245, 247–48; time surveys and, 206–8; trust and, 140–41, 146, 163, 168, 172; values and, 211, 223; Victorian Britain and, 28 United Nations, 297, 304n7; Brundtland Report and, 77; climate change and, 59, 62, 66, 77–78, 82–83; happiness and, 38; sustainable development and, 77; TEEB and, 78; trust and, 163–64, 176; values and, 219 United States, 4, 10, 16; additional growth in, 12; bifurcation of social norms and, 231–32; Boskin Commission and, 37; Bush and, 127–28; Cold War and, 93, 112, 147, 209, 213, 239; convergence and, 122; credibility and, 101; debt of, 101; defense budget of, 93; diversity and, 172; Easterlin Paradox and, 39–44; fairness and, 115–16, 121–22, 125–35, 140–43; Founding Fathers of, 31; happiness and, 37, 41–44; inequality in, 122, 125–31, 135, 276; institutions and, 240, 243, 251, 256, 258, 260; Kyoto Protocol and, 62; measurement and, 184, 191, 203, 206; nature and, 55, 62–63, 66; Obama and, 62, 87, 173, 260, 285, 288; policy recommendations and, 276–77, 280–88, 291; posterity and, 91–93, 97, 101, 105, 109; public deliberation and, 258–59; Reagan and, 93, 121, 127, 211, 240, 243, 247–48; savings rate in, 105, 280–82; small public sector of, 243; stimulus packages and, 91; time surveys and, 206–8; trust and, 140, 149, 171–75; values and, 209, 211, 223, 226; voter turnout and, 175; wage penalties and, 133 University of California, Berkeley, 205 University of East Anglia, 67 University of Sheffield, 224 Unto This Last (Ruskin), 27–28 U.S.


The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, Bernie Madoff, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, minimum wage unemployment, moral hazard, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, shareholder value, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

Should we give tax relief to those who buy greener cars? The issues aren’t trivial. Financial incentives can backfire. Another interesting aspect of our bounded selfishness is that besides ­having a social conscience and altruistic motivations, we exhibit consideration for total strangers – and expect it in return. Giving tips in restaurants we will never again visit is one example. But systematic evidence has been provided by the ultimatum game: player A is given a sum of money to split with player B; if B accepts A’s offer, they divide the money accordingly; but if B rejects A’s offer, both players get nothing. Textbook economics says that player B should accept any offer greater than zero. Yet in thousands of trials around the world, with different stakes, people generally reject offers of 30 per cent (or less) of the total sum.

An equilibrium may be stable (the system returns to the equilibrium following a small disturbance) or unstable (a small disturbance drives the system away from equilibrium). Equity: a synonym for fairness. What is equitable or fair requires an ethical or ­normative judgement. For example, equity may involve the idea of a ‘fair go’ where everyone has equal opportunity. It may instead involve judgements about the equitability of outcomes, as in utilitarianism. The ultimatum game (described in Chapter 1) shows that people are prepared to make themselves absolutely worse off in order to punish others who have not treated them ‘fairly’. Externalities: cost or benefits imposed on others that do not influence the decisions by the original actor and which are not reflected in market prices. These are of second order of importance according to their treatment in mainstream texts.

., 190 state, role of, 18–19, 196 status: as non-pecuniary benefit, 185; importance of, 185–6 Stern, Nicholas, 154–5 Stigler, George, 138 Stiglitz, Joseph, 1, 55–6, 67, 106, 143, 145, 146, 193, 245–6, 253, 260–1, 262 strategic trade policy, 222 sub-prime mortgage crisis, 70, 252, 260, 262 subsidies, 223, 231 Summers, Larry, 146 supply curve, 47–8, 62, 64, 65, 66, 118–21, 122–3, 130; of labour, 175 surplus production, 63 see also consumer’s surplus Sweden, child health in, 216 systematic mistakes, 22–3 tariffs, 31, 43, 45, 222–3, 231; analysis of, 225; economics of, 219–24; seen as increasing employment, 223–4 taxation, 14, 196–218; and inefficiencies, 20; based on consumption spending, 158; costs of, 52–3, 196–7; in Denmark, 210–11; international comparison of, 197–201; predictions concerning incidence of, 61–2; sales taxes, 51–2 Taylor, Lance, 166 technological change, 133, 228 technology, 93 terms of trade, changes of, 223 testing of hypotheses, 37, 38 Thaler, Richard, 24, 69 thought experiments, 38–9, 90, 101 Thucydides, 234 Thurow, Lester, 183, 192 time, scarcity of, 91 tit-for-tat strategies, 129 304 Voitchovsky, Sarah, 211 voluntary simplicity, 91 ultimatum game, 24 unemployment, 43–4, 174, 225, 226, 236 see also minimum wage, effect on unemployment unfair trade practices, retaliation against, 223 Union for Radical Political Economics (URPE), 7 unions, 24, 190, 194, 240; and monopsony, 176–7; and wage differentials, 173; cited as cause of unemployment, 173 United Nations, Millennium Development Goals, 201 United Nations Children’s Fund (UNICEF), 82, 216; Baby Friendly Hospital Initiative, 83 United Nations Development Programme (UNDP), 202 United States of America (USA), trade deficit of, 44 US–Canada softwood lumber dispute, 237–8 utility, 9; maximization of, 12, 25, 74–6 Valentine, T., 33 Veblen, Thorstein, 109 wage compression, 184–5 wage differentials, caused by unions, 173 wage–turnover relationship, 189 wages, 58, 67, 177, 185, 187, 189–90; determination of, 171–2, 230; differentials of, 172; inequality of, 227 see also efficiency wage and minimum wage wants: constructed, 16; creation of, 87; equality of, 42; unlimited, 15–17, 243 Weeks, John, 205 welfare state, 210; arguments against, 208 well-being, 156–7, 158, 186, 209, 246; determination of, 6, 91; maximization of, 85; subjective, surveys of, 87–9 Wells, R., 46, 53, 243 Wilkinson, R., and M.


pages: 313 words: 95,077

Here Comes Everybody: The Power of Organizing Without Organizations by Clay Shirky

Andrew Keen, Berlin Wall, bioinformatics, Brewster Kahle, c2.com, Charles Lindbergh, crowdsourcing, en.wikipedia.org, hiring and firing, hive mind, Howard Rheingold, Internet Archive, invention of agriculture, invention of movable type, invention of the printing press, invention of the telegraph, jimmy wales, Joi Ito, Kuiper Belt, liberation theology, Mahatma Gandhi, means of production, Merlin Mann, Metcalfe’s law, Nash equilibrium, Network effects, Nicholas Carr, Picturephone, place-making, Pluto: dwarf planet, prediction markets, price mechanism, prisoner's dilemma, profit motive, Richard Stallman, Robert Metcalfe, Ronald Coase, Silicon Valley, slashdot, social software, Stewart Brand, supply-chain management, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, transaction costs, ultimatum game, Vilfredo Pareto, Yogi Berra

Yochai Benkler, a legal scholar and network theorist and author of The Wealth of Networks, calls nonmarket creation of group value “commons-based peer production” and draws attention to the ways people are happy to cooperate without needing financial reward. Wikipedia is peer production par excellence, set up to allow anyone who wants to edit an article to do so, for any and all reasons except getting paid. There’s an increasing amount of evidence, in fact, that specific parts of our brain are given over to making economically irrational but socially useful calculations. In one well-known experiment, called the Ultimatum game, two people divide ten dollars between them. The first person is given the money and can then divide it between the two of them in any way he likes; the only freedom the second person has is to take or leave the deal for both of them. Pure economic rationality would suggest that the second person would accept any split of the money, down to a $9.99-to-$.01 division, because taking even a penny would make him better off than before.

See also Twitter Thailand, 2006 military coup Thurmond, Strom Tit-for-Tat strategy Torvalds, Linus Tragedy of the Commons transaction costs collapse, collective action and communities of practice and defined and e-mail fitness landscape and group activities and hierarchies and intersection with power law distributions of participation Linux and need for bargains new social tools and in organizations social capital and Stay at Home Moms Meetup group example travel, communications tools as substitute Trithemius, Johannes trolling Trow, George W.S. Twitter Tyler, Josh Ultimatum game Unix U.S. Army, as hierarchical institution USA Today user-generated content Viegas, Fernanda Voice of the Faithful (VOTF) Wales, Jimmy Wasik, Bill Watkins, Sherron Wattenberg, Martin Watts, Duncan weblogs. See also LiveJournal as alternative to publishing audience for audio Boing Boing Coalition for an Airline Passengers’ Bill of Rights as example of Small World networks flash mobs and initial development interactivity potential journalistic privilege and mass amateurization and vs. newspapers participation imbalance power law distribution and role in 2006 Thailand military coup scale issue social limits as social tool stolen Sidekick and vs.


pages: 338 words: 100,477

Split-Second Persuasion: The Ancient Art and New Science of Changing Minds by Kevin Dutton

availability heuristic, Bernie Madoff, call centre, Cass Sunstein, cognitive bias, cognitive dissonance, credit crunch, different worldview, double helix, Douglas Hofstadter, equity premium, fundamental attribution error, haute couture, job satisfaction, loss aversion, Milgram experiment, placebo effect, Stephen Hawking, Steven Pinker, theory of mind, ultimatum game, upwardly mobile

Journal of Personality and Social Psychology 64(3) (1993): 431–441. 27 Lisa DeBruine at the University of Aberdeen’s … DeBruine, Lisa M., ‘Facial Resemblance Enhances Trust.’ Proceedings of the Royal Society of London B 269 (2002): 1307–1312. 28 First, DeBruine devised a computer game …De Bruine’s computer task is a variation of a well-known paradigm within Game Theory called the Ultimatum Game. For more on the Ultimatum Game, see Steven D. Levitt and Stephen J. Dubner. SuperFreakonomics: Global cooling, patriotic prostitutes, and why suicide bombers should buy life insurance (Chapter 3). (New York, NY: HarperCollins, 2009). 29 Would they, as predicted by … In ethology, kin selection refers to the tendency for some animals to favour others that bear most genetic similarity to themselves. For those interested in learning more about kin selection, the following articles offer an excellent grounding in the subject.


pages: 417 words: 103,458

The Intelligence Trap: Revolutionise Your Thinking and Make Wiser Decisions by David Robson

active measures, Affordable Care Act / Obamacare, Albert Einstein, Alfred Russel Wallace, Atul Gawande, availability heuristic, cognitive bias, corporate governance, correlation coefficient, cuban missile crisis, Daniel Kahneman / Amos Tversky, dark matter, deliberate practice, dematerialisation, Donald Trump, Flynn Effect, framing effect, fundamental attribution error, illegal immigration, Isaac Newton, job satisfaction, knowledge economy, lone genius, meta analysis, meta-analysis, Nelson Mandela, obamacare, pattern recognition, price anchoring, Richard Feynman, risk tolerance, Silicon Valley, social intelligence, Steve Jobs, the scientific method, theory of mind, traveling salesman, ultimatum game, Y2K, Yom Kippur War

That’s a massive reduction – of a very common bias – for such a short intervention.27 By allowing us to dissect our emotions from a more detached perspective, mindfulness has also been shown to correct the myside biases that come from a threatened ego,28 meaning people are less defensive when they are faced with criticism29 and more willing to consider others’ perspectives, rather than doggedly sticking to their own views.30 Meditators are also more likely to make rational choices in an experimental task known as the ‘ultimatum game’ that tests how we respond to unfair treatment by others. You play it in pairs, and one partner is given some cash and offered the option to share as much of the money as they want with the other participant. The catch is that the receiver can choose to reject the offer if they think it’s unfair – and if that happens, both parties lose everything. Many people do reject small offers out of sheer spite, even though it means they are ultimately worse off – making it an irrational decision.

., Heppner, W.L. and Lance, C.E. (2008), ‘Individual Differences in Authenticity and Mindfulness as Predictors of Verbal Defensiveness’, Journal of Research in Personality, 42(1), 230?8. 30 Reitz, M., Chaskalson, M., Olivier, S. and Waller, L. (2016), The Mindful Leader, Hult Research. Retrieved from: https://mbsr.co.uk/userfiles/Publications/Mindful-Leader-Report-2016-updated.pdf. 31 Kirk, U., Downar, J. and Montague, P.R. (2011), ‘Interoception Drives Increased Rational Decision-Making in Meditators Playing the Ultimatum Game’, Frontiers in Neuroscience, 5, 49. 32 Yurtsever, G. (2008), ‘Negotiators’ Profit Predicted By Cognitive Reappraisal, Suppression of Emotions, Misrepresentation of Information, and Tolerance of Ambiguity’, Perceptual and Motor Skills, 106(2), 590–608. 33 Schirmer-Mokwa, K.L., Fard, P.R., Zamorano, A.M., Finkel, S., Birbaumer, N. and Kleber, B.A. (2015), ‘Evidence for Enhanced Interoceptive Accuracy in Professional Musicians’, Frontiers in Behavioral Neuroscience, 9, 349.


pages: 382 words: 100,127

The Road to Somewhere: The Populist Revolt and the Future of Politics by David Goodhart

Affordable Care Act / Obamacare, agricultural Revolution, assortative mating, Big bang: deregulation of the City of London, borderless world, Boris Johnson, Branko Milanovic, Bretton Woods, British Empire, call centre, capital controls, carbon footprint, central bank independence, centre right, coherent worldview, corporate governance, credit crunch, deglobalization, deindustrialization, Donald Trump, Downton Abbey, Edward Glaeser, en.wikipedia.org, Etonian, European colonialism, eurozone crisis, falling living standards, first-past-the-post, gender pay gap, gig economy, glass ceiling, global supply chain, global village, illegal immigration, income inequality, informal economy, job satisfaction, knowledge economy, labour market flexibility, low skilled workers, market friction, mass immigration, mittelstand, Neil Kinnock, New Urbanism, non-tariff barriers, North Sea oil, obamacare, old-boy network, open borders, Peter Singer: altruism, post-industrial society, post-materialism, postnationalism / post nation state, race to the bottom, Richard Florida, Ronald Reagan, selection bias, shareholder value, Skype, Sloane Ranger, stem cell, Thomas L Friedman, transaction costs, trickle-down economics, ultimatum game, upwardly mobile, wages for housework, white flight, women in the workforce, working poor, working-age population, World Values Survey

But political discontent in modern times has always been more about relative access to the good things in life, about feelings of loss and sometimes humiliation, about disappointed expectations and about the conflicting worldviews of elites and masses, rather than the absolute condition of the world. One of the best explanations for inchoate anti-establishment sentiments can be found in the famous social psychology experiment, the ‘ultimatum game’. In a one-off deal someone is given £100 to share with someone else in whatever proportion they choose, but if the other person rejects the share they are offered as unfair neither person receives anything. The experiment usually finds that if the second person is offered much below £30 the deal is rejected and neither party gets any money, showing that people place recognition, reputation and a sense of fairness before simple gain.

.: product lines of, 86 Appiah, Kwame Anthony: 117 assortative mating: 188 Aston University: 164 austerity: 98, 200 Australia: 4, 160 Austria: 56, 69–70 authoritarianism: 8, 12, 30, 33, 44, 57; concept of, 57; hard, 45 Baggini, Julian: observations of British class system, 59 Bangladesh: 130 Bank of England: personnel of, 86 Bartels, Larry: Democracy for Realists, 61 Bartlett, Jamie: Radicals, 64 Basel Accords: 85 BASF: 176 Bayer: 176 Belgium: 73, 75, 101; Brussels, 53, 89, 93, 95, 98 Berlusconi, Silvio: 65 birther movement: 68 Bischof, Bob: head of German-British Forum, 174 Blair, Tony: 10, 76, 159, 189; administration of, 218; foreign policy of, 96; speeches of, 3, 7, 49; support for Bulgarian and Romanian EU accession, 26; unravelling of legacy, 221 Bloomsbury Group: 34 Bogdanor, Vernon: concept of ‘exam-passing classes’, 3 Boyle, Danny: Summer Olympics opening ceremony (2012), 111, 222 Branson, Richard: 11 Brexit (EU Referendum)(2016): 1–2, 19, 27, 81, 89, 93, 99–100, 125, 233; negotiations, 103; polling prior to voting, 30, 64; Remainers, 2, 19–20, 52–3, 132; sociological implications of, 4–7, 13, 53–4, 118, 126, 167–8, 225; Stronger In campaign, 61; Vote Leave campaign, 42, 53, 72, 91, 132; voting pattern in, 7–9, 19–20, 23, 26, 36, 52, 55–6, 60, 71, 74, 215, 218 British Broadcasting Corporation (BBC): 112, 145; Newsnight, 60; personnel of, 15; Radio 4, 31, 227; Today, 60 British Empire: 107 British National Party: European election performance of (2009), 119; supporters of, 38 British Future: 19 British Private Equity and Venture Capital Association: personnel of, 135 British Social Attitudes (BSA) surveys: 153; authoritarian-libertarian scale, 44–5; findings of, 38–9, 44, 106–7, 120, 202, 206–7, 218; immigration survey (2013), 44; personnel of, 218–19 British Values Survey: establishment of (1973), 43; groups in, 43 Brooks, Greg: Sheffield report, 155 Brown, Belinda: 205, 207–8 Brown, Gordon: 106; abolition of Married Couples Allowance, 204; budget of (2006), 147–8; political rhetoric of, 16–17 Brummer, Alex: Britain for Sale, 173 Bulgaria: 26; accession to EU, 225 (2007); migrants from, 126; population levels of, 102 Burgess, Simon: 131 Burggraf, Shirley: Feminine Economy and Economic Man, The, 194 Cahn, Andrew: 98 Callaghan, Jim: Ruskin College speech (1976), 154 Callan, Eamonn: 191 Callan, Samantha: 202, 212 Cambridge University: 35, 179, 186; faculty of, 37; students of, 158–9 Cameron, David: 71, 103, 179, 183, 189; administration of, 226; cabinet of, 187 Canada: 160; mass immigration in, 119 capital: 9, 100; cultural, 190; human, 34; liberalisation of controls, 97; social, 110 capitalism: 7, 11; organised, 159 Care (Christian Action Research & Education): 203 Carswell, Douglas: 13 Case, Anne: 67 Casey, Louise: review of opportunity and integration, 129 Catholicism: 15, 213; original sin, 57 Cautres, Bruno: 72 Center for Humans and Nature: 30 Centre for Social Justice: 206; personnel of, 202 chauvinism: 33; decline in prevalence of, 39; violent, 106 China, People’s Republic of: 10, 95, 104, 160; accession to WTO (2001), 88; manufacturing sector of, 86; steel industry of, 87 Chirac, Jacques: electoral victory of (2002), 49 Christianity: 33, 69, 83, 156 citizenship: 68, 121–2; democratic, 7; global, 114; legislation, 103; national, 5; relationship with migration, 126; shared, 113; temporary, 126 Clarke, Charles: British Home Secretary, 84 Clarke, Ken: education reforms of, 158–9 Clegg, Nick: 11, 13, 189 Cliffe, Jeremy: 10–11; ‘Britain’s Cosmopolitan Future’ 216; observations of social conservatism, 217 Clinton, Bill: 29, 76; administration of, 218 Clinton, Hillary: electoral defeat of (2016), 67–8 Coalition Government (UK) (2010–16): 13, 54, 226; cabinet members of, 16; immigration policies of, 124–5 Cold War: end of, 83, 92, 95, 98 Collier, Paul: 110; view of potential reform of UNHCR, 84 colonialism: 87; European, 105 communism: 58 Communist Party of France: 72 Confederation of British Industry (CBI): 164 confirmation bias: concept of, 30 Conservative Party (Tories)(UK): 19, 207; dismantling of apprenticeship system by, 157; ideology of, 76, 196; members of, 31, 164, 187; Party Conference (2016), 226; Red Toryism, 63; supporters of, 24, 35, 77, 143, 216–17 conservatism: 4, 9; cultural, 58; social, 217; Somewhere, 7–8; working-class, 8 Corbyn, Jeremy: elected as leader of Labour Party, 20, 53, 59, 75, 78 Cowley, Philip: 35 Crosland, Tony: Secretary of Education, 36; two-tier higher education system proposed by, 158 Crossrail 2: 228; spending on, 143 Czech Republic: 69, 73 D66: supporters of, 76 Dade, Pat: 43–4, 219; role in establishment of British Values Survey, 43, 218–19 Daily Mail: 227; reader base of, 4 Danish Peoples’ Party: 55, 69–70, 73; ideology of, 73 Darwin, Charles: 28 death penalty: 44; support for, 39, 216–17 Deaton, Angus: 67 deference, end of: 63 Delors, Jacques: 96, 103–4; President of European Commission, 94 Democratic Party: ideology of, 62, 65; shortcomings of engagement strategies of, 66–7 Demos: 137 Dench, Geoff: 207; concept of ‘quality with pluralism’, 214; Transforming Men, 209 Denmark: 69, 71, 99; education levels in, 156 Diana, Princess of Wales: death of (1997), 107 double liberalism: 1, 11, 63 Duffy, Gillian: 124 Dyson: 173; Dyson effect, 173 Economist: 10, 210, 216 Eden, Anthony: administration of, 187 Eichengreen, Barry: 91 Elias, Norbert: 119 Employer Skills Survey: 163 Engineering Employers Federation: 166 Englishness: 111 Erdogan, Recep Tayyip: 218 Essex Man/Woman: 186 Estonia: population levels of, 102 Eton College: 179, 187 Euro (currency): 100–1; accession of countries to, 98–9 European Commission: 26, 97 European Convention on Human Rights: 83–4 European Court of Justice (ECJ): 103 European Economic Community (EEC): 92; British accession to (1973), 93; Treaty of Rome (1957), 101 European Exchange Rate Mechanism (ERM): 97–8 European Parliament: elections (2009), 71–2; elections (2014), 72 European Union (EU): 10, 25, 53, 76, 89, 92–4, 99–100, 120, 124, 160, 215, 221–2, 229, 233; Amsterdam Treaty (1997), 94; Common Agricultural Policy, 92, 96; establishment of (1957), 91–2; freedom of movement principles, 100–1, 163–4; Humanitarian Protection Directive (2004), 83; integration, 50, 98–9, 173; Lisbon Treaty (2009), 94; Maastricht Treaty (1992), 94, 96, 103; members states of, 16, 31, 55, 71, 216; personnel of, 128; Schengen Agreement (1985), 94–5, 99, 117; Single European Act (1986), 94; Treaty of Nice (2000), 94 Euroscepticism: 69 Eurozone Crisis (2008–): 92, 99 Evening Standard: 143–5 Facebook: 86 family culture: 196–7; childcare, 202–3; cohabitation, 196, 211; divorce figures, 196–7; gender roles, 206–13; legislation impacting, 195–6; lone parents, 196; married couples tax allowance, 225; relationship with state intrusion, 200–2; tax burdens, 203–4; tax credit systems, 202, 204–5, 225 Farage, Nigel: 11; leader of UKIP, 72; political rhetoric of, 20 Fawcett Society: surveys conducted by, 195–6 federalism: 69 feminism: 185, 199, 205; gender pay gap, 198–9; orthodox, 194 Fidesz: 69, 71, 73 Fillon, François: 73 Financial Times: 91, 108, 115, 138, 145, 147 Finkelstein, Daniel: 34 Five Star Movement: 53, 55, 64, 70, 73 Florida, Richard: concept of ‘Creative Class’, 136 Foges, Clare: 183 food sector: 17, 102, 125, 126 Ford, Robert: 35, 150 foreign ownership: 172–74, 230 Fortuyn, Pim: assassination of (2002), 50, 69 France: 69, 75, 94–6, 101, 173; agricultural sector of, 96; compulsory insurance system of, 222; Paris, 104, 143; high-skill/low-skill job disappearance in, 151; Revolution (1789–99), 106 Frank, Thomas: concept of ‘liberalism of the rich’, 62 Franzen, Jonathan: 110 free trade agreements: opposition to, 62 Freedom Party: 69; electoral defeat of (2016), 70; ideology of, 73; supporters of, 70 French Colonial Empire (1534–1980): 107 Friedman, Sam: ‘Introducing the Class Ceiling: Social Mobility and Britain’s Elite Occupations’, 187 Friedman, Thomas: World is Flat, The, 85 Front National (FN): 53, 69, 72–3; European electoral performance of (2014), 72; founding of (1973), 72; supporters of, 72 Gallup: polls conducted by, 65 Ganesh, Janan: 115, 145 gay marriage: 5, 76; opposition to, 46–7; support for, 26, 220 General Electric Company (GEC) plc: 172, 175 German-British Forum: members of, 174 Germany: 70, 73, 86, 94, 96, 100–1, 173–4, 209; automobile industry of, 96; chemical industry of, 176; compulsory insurance system of, 222; education sector of, 166; high-skill/low-skill job disappearance in, 151; labour market of, 147; Leipzig, 58; Ludwigshafen, 176; Reunification (1990), 96, 147, 176; Ruhr, 176–7 Ghemawat, Prof Pankaj: 85–6 Gilens, Martin: study of American public policy and public preferences, 61–2 Glasman, Maurice: 227 Global Financial Crisis (2007–9): 56, 169–70, 177; Credit Crunch (2007–8), 98, 177 Global Villagers: 31–2, 44–5, 160, 226; characteristics of, 46; political representation of, 75; political views of, 109, 112 globalisation: 9–10, 50–2, 81–2, 85, 87–8, 90–1, 105–6, 148; economic, 9; global trade development, 86–7; growth of, 85–6; hyperglobalisation, 88–9; relationship with nation states, 85–6; sane, 90 Golden Dawn: 74; growth of, 105 Goldman Sachs: personnel of, 31 Goldthorpe, John: 184–5, 189–90 Goodhart, David: 12 Goodwin, Fred: 168 Goodwin, Matthew: 150 Gordon, Ian: 137–8, 140 Gould, Philip: 220 Gove, Michael: 64, 91 great liberalisation: 39–40, 47; effect of, 40 Greater London Authority (GLA): 143 Greece: 53, 56, 69, 74, 99, 105; Athens, 143; government of, 98 Green, Francis: 163 Green Party (UK): supporters of, 38 Group of Twenty (G20): 89 Guardian: 14, 210 Habsburg Empire (Austro-Hungarian Empire): collapse of (1918), 107 Haidt, Jonathan: 11, 30, 33, 133; Righteous Mind, The, 28–9 Hakim, Catharine: 205 Hall, Stuart: 14–15 Hames, Tim: 135–6 Hampstead/Hartlepool alliance: 75 Hanson Trust: subsidiaries of, 175 Hard Authoritarian: 43–7, 51, 119, 220; characteristics of, 24–5; political views of, 109 Harris, Gareth: 137; ‘Changing Places’, 137 Harvard University: faculty of, 57 Heath, Edward: foreign policy of, 96 Higgins, Les: role in establishment of British Values Survey, 43 High Speed 2 (HS2): 228 High Speed 3 (HS3): aims of, 151, 228 Hitler, Adolf: 94 Hoescht: 176 Hofstadter, Richard: ‘Everyone is Talking About Populism, But No One Can Define It’ (1967), 54 Holmes, Chris: 151 homophobia: observations in BSA surveys, 39; societal views of, 39–40, 216 Honig, Bonnie: concept of ‘objects of public love’, 111 Huguenots: 121 Huhne, Chris: 16, 32 human rights: 5, 10, 55, 113; courts, 113; legislation, 5, 83–4, 109, 112; rhetoric, 112–13 Hungary: 53, 64, 69, 71, 73–4, 99, 218; Budapest, 218 Ignatieff, Michael: leader of Liberal Party (Canada), 13 Imperial Chemical Industries (ICI): 172, 174–5; personnel of, 169; subsidiaries of, 175 Inbetweeners: 4, 25, 46, 109; political views of, 109 India: 104 Inglehart, Ronald: theories of value change, 27 Insider Nation: concept of, 61, 64; evidence of, 61–2 Institute for Fiscal Studies (IFS): 201; findings of, 211–12 International Monetary Fund (IMF): 86–7, 102 interracial marriage: societal views of, 40 India: 10, 160 Ipsos MORI: polls conducted by, 42, 122 Iraq: 84; Operation Iraqi Freedom (2003–11), 82 Islam: 50; Ahmadiyya, 84; conservative, 131; Halal, 68; hostility to, 73; Qur’an, 50 Islamism: 130 Islamophobia: 130 Italy: 55, 64, 69–70, 73, 96; migrants from, 125 Jamaica: 14 Japan: 86; request for League of Nations racial equality protocol (1919), 109 Jews/Judaism: 121, 259; orthodox, 131; persecution of, 17 jingoism: 8 Jobbik: 53, 64, 74 Johnson, Boris: 145 Jones, Sir John Harvey: death of (2008), 169 Jordan, Hashemite Kingdom of: government of, 84 Jospin, Lionel: defeat in final round of French presidential elections (2002), 49 Judah, Ben: This is London: Life and Death in the World City, 145 Kaufmann, Eric: 8–9, 131, 219, 227; ‘Changing Places’, 137 Kellner, Peter: 78 King, Mervyn: Governor of Bank of England, 86 Kinnock, Neil: 98 knowledge economy: 147, 149, 154, 166, 221 Kohl, Helmut: 94 Kotleba: 74 Krastev, Ivan: 55, 65, 82–3 labour: 9, 89–90, 149; eastern European, 125–6; gender division of, 197; hourglass labour market, 150, 191; living wage, 26, 152; market, 95, 101–2, 124, 140, 147–8, 150–2, 156–7, 181, 225 Labour Party (Denmark): 77 Labour Party (Netherlands): 50; supporters of, 76 Labour Party (UK): 2, 23, 53, 57, 72, 123, 157, 159, 207; Blue Labour, 63; electoral performance of (2015), 75; European election performance (2014), 72; expansion of welfare state under, 199–200; members of, 14, 20, 36, 59, 61, 77–8, 84; Momentum, 53; New Labour, 33, 75, 107, 123, 155, 159, 167, 196, 207, 220, 226, 232; Party Conference (2005), 7; social media presence of, 79; supporters of, 17, 35, 75, 77, 143, 221; voting patterns in Brexit vote, 19 Lakner, Christoph: concept of elephant curve, 87 Lamy, Pascal: 97 Latvia: adoption of Euro, 98–9; migrants from, 25–6 Laurison, Daniel: ‘Introducing the Class Ceiling: Social Mobility and Britain’s Elite Occupations’, 187 Law and Justice Party: 69, 71, 73 Lawson, Nigel: 205 Le Pen, Jean-Marie: victory in final round of French presidential elections (2002), 49, 69 Le Pen, Marine: 53; electoral strategies of, 73 Leadbeater, Charles: 53 League of Nations: protocols of, 109 left-behinders: 20 Lega Nord: 69 Levin, Yuval: Fractured Republic, The, 232 liberal democracy: 2, 31, 55 Liberal Democrats: 23, 53–4; members of, 16; supporters of, 38, 78 Liberal Party (Canada): members of, 13 liberalism: 4–5, 12–13, 29–31, 55, 76, 119, 127–8, 199, 233; Anywhere, 27–8; baby boomer, 6; double, 1, 63; economic, 11; graduate, 216–17; meritocratic, 34; metropolitan, 216; orthodox, 13–14; Pioneer, 44; social, 4, 11 libertarianism: 8, 11, 22, 39, 44 Libya: 84; Civil War (2011), 225 Lilla, Mark: 35 Lind, Michael: 105, 135 Livingstone, Ken: 136 Lloyd, John: 56 London School of Economics (LSE): 54, 137–8, 140, 183 Low Pay Commission: findings of, 170 Lucas Industries plc: 172 male breadwinner: 149, 194, 195, 198, 206, 207 Manchester University: faculty of, 131 Mandelson, Peter: British Home Secretary, 61; family of, 61 Mandler, Peter: 135 Marr, Andrew: 53, 181 Marshall Plan (1948): 92 mass immigration: 14, 55, 104–5, 118–19, 121–4, 126–7, 140, 228–9; accompanied infrastructure development, 137–9; brain-drain issue, 102; debate of issue, 81–2; freedom of movement debates, 100–3; housing levels issue, 138–9; impact on wages, 152; integration, 129–32, 140–2; non-EU, 124–5; opposition to, 16–17, 120, 220 May, Theresa: 63, 179, 183, 198–9; administration of, 173, 176, 187, 191, 230; British Home Secretary, 124–5; ‘Citizens of Nowhere’ speech (2016), 31; political rhetoric of, 15, 31, 226 McCain, John: electoral defeat of (2008), 68 meritocracy: 152, 179–80, 190; critiques of, 180–1; perceptions of, 182–3 Merkel, Angela: reaction to refugee crisis (2015), 71 Mexico: borders of, 21 migration flows: global rates, 82, 87; non-refugee, 82 Milanovic, Branko: 126; concept of elephant curve, 87 Miliband, Ed: 78, 189 Mill, John Stuart: ‘harm principle’ of, 11–12 Millennium Cohort Study: 159 Miller, David: concept of ‘weak cosmopolitanism’, 109 Mills, Colin: 185 Mitterand, François: 94, 97 mobility: 8, 11, 20, 23, 36, 37, 38, 153, 167, 219; capital: 86, 88; geographical, 4, 6; social, 6, 33, 58, 152, 168, 179, 180, 182, 183–191, 213, 215, 220, 226, 231 Moderate Party: members of, 70 Monnet, Jean: 94–5, 97, 103–4 Morgan Stanley: 171 Mudde, Cas: observations of populism, 57 multiculturalism: 14, 50, 141–2; conceptualisation of, 106; laissez-faire, 132 narodniki: 54 national identity: 14, 38, 41, 111–12; conceptualisations of, 45; indifference to, 41, 46, 106, 114; polling on, 41 nationalism: 38, 46–7, 105; chauvinistic, 107, 120; civic, 23, 53; extreme, 104; moderate, 228; modern, 112; post-, 8, 105–6, 112; Scottish, 221 nativism: 57 Neave, Guy: 36 net migration: 126; White British, 136 Netherlands: 13–14, 50, 69, 73, 75, 99–100; Amsterdam, 49, 51; immigrant/minority population of, 50–1; Moroccan population of, 50–1 Netmums: surveys conducted by, 205–6 New Culture Forum: members of, 144 New Jerusalem: 105 New Society/Opinion Research Centre: polling conducted by, 33 New Zealand: 160 Nextdoor: 114 non-governmental organizations (NGOs): 21; refugee, 82 Norris, Pippa: 57 North American Free Trade Agreement (NAFTA): 91; opposition to, 62 North Atlantic Treaty Organization (NATO): 85, 92; personnel of, 84 Norway: 69 Nuttall, Paul: leader of UKIP, 72; Obama, Barack: 67; approval ratings of, 60; electoral victory of (2012), 68; healthcare policies of, 22–3; target of birther movement, 68 O’Donnell, Gus: background of, 15–16; British Cabinet Secretary, 15 O’Leary, Duncan: 232 Open University: Centre for Research on Socio-Cultural Change (CRESC), 172–3 Operation Iraqi Freedom (2003–11): political impact of, 56 Orbán, Victor: 69, 218 Organisation for Economic Co-operation and Development (OECD): 201, 204; report on education levels (2016), 155–6; start-ups ranking, 173 Orwell, George: Nineteen Eighty-Four, 108–9 Osborne, George: 189; economic policies of, 4, 226 Oswald, Andrew: 171 Ottoman Empire: collapse of (1923), 107 outsider nation: concept of, 61, 64 Owen, David: 99 Oxford University: 15, 35, 179, 186; Centre on Skills, Knowledge and Organisational Performance, 151; faculty of, 31, 151; Nuffield College, 32 Pakistan: persecution of Ahmadiyya Muslims in, 84 Parris, Matthew: 115 Parsons, Talcott: concept of ‘achieved’ identities, 115 Party of Freedom (PVV): 69; ideology of, 73; supporters of, 50, 76 Paxman, Jeremy: 42 Pearson: ownership of Higher National Certificates (HNCs)/Higher National Diplomas (HNDs), 157 Pegida: ideology of, 73 Pessoa, Joao Paulo: 88 Phalange: 74 Phillips, Trevor: 133 Pioneers: characteristics of, 43–4 Plaid Cymru: supporters of, 38 Podemos: 53, 64 Poland: 56, 69, 73; migrants from, 25–6, 121 Policy Exchange: ‘Bittersweet Success’, 188 political elites: media representation of, 63–4 populism: 1, 5, 13–14, 49–52, 55–6, 60, 64, 67, 69–74, 81; American, 54, 65; British, 63; decent, 6, 55, 71, 73, 219–20, 222, 227, 233; definitions of, 54; European, 49, 53, 65, 68–9, 74; left-wing, 54, 56; opposition to, 74; right-wing, 33, 51, 54 Populists: 54 Portillo, Michael: 31 Portugal: migrants from, 121, 125 post-industrialism: 6 post-nationalism: 105 poverty: 83, 168; child, 183–4, 200, 204; extreme, 87; reduction of, 78, 200; wages, 231 Powell, Enoch: ‘Rivers of Blood’ speech (1968), 127 Professionalisation of politics: 59 Progress Party: 69 progressive individualism: 5 Progressive Party: founding of (1912), 54 proportional representation: support for, 228 Prospect: 14, 91, 136 Prospectors: characteristics of, 43 Protestantism: 8, 213 Putin, Vladimir: 218 Putnam, Robert: 22; theory of social capital, 110 racism: 32, 73–4, 134; observations in BSA surveys, 39; societal views of, 39; violent, 127 Rashid, Sammy: Sheffield report, 155 Reagan, Ronald: 58, 63; approval ratings of, 60 Recchi, Ettore: 104 Refugee Crisis (2015–): 83–4; charitable efforts targeting, 21–2; government funds provided to aid, 83; political reactions to, 71 Relationships Foundation: 202 Republic of Ireland: 99; high-skill/low-skill job disappearance in, 151; property bubble in, 98 Republican Party: ideology of, 62, 65; members of, 68 Resolution Foundation: 87–8; concept of ‘squeezed middle’, 168–9; reports of, 171 Ricardo, David: trade theory of, 101 Robinson, Eric: 36 Rodrik, Dani: 82, 89; concept of ‘hyperglobalisation’, 88; theory of ‘sane globalisation’, 90 Romania: 26; accession to EU, 225 (2007); migrants from, 102, 126 Romney, Mitt: electoral defeat of (2012), 68 Roosevelt, Theodore: leader of Progressive Party, 54 Rousseau, Jean-Jacques: 156 Rowthorn, Bob: 149 Royal Bank of Scotland (RBS): personnel of, 168 Royal College of Nursing: 140 Rudd, Amber: foreign worker list conflict (2016), 17 Ruhs, Martin: 126 Russell Group: 55; culture of, 37; student demographics of, 130–1, 191 Russian Federation: 2, 92; Moscow, 218; St Petersburg, 218 Rwanda: Genocide (1994), 82 Saffy factor: concept of, 199, 221–2 Scheffer, Paul: 85; ‘Multicultural Tragedy, The’ (2000), 49–50 Schumann, Robert: 94 Sciences Po: personnel of, 104 Scottish National Party (SNP): 1, 23, 54, 112; electoral performance of (2015), 75; ideology of, 53 Second World War (1939–45): 105, 194; Holocaust, 109 Security and identity issues: 41, 78, 81 Settlers: characteristics of, 43 Sikhism: 131 Singapore: 101, 128; education levels in, 156 Slovakia: 69, 73–4 Slovenia: adoption of Euro, 98–9 Smer: 69, 73 Smith, Zadie: 141–2 Social Democratic Party: supporters of, 75–6 social mobility: 6, 33, 58, 179–80, 183, 187, 189–91, 220; absolute mobility, 184, 188; relative mobility, 184; slow, 168; upward, 152 Social Mobility Commission: 161, 179–80 socialism: 49, 72, 183, 190 Somewheres: 3–5, 12–13, 17–18, 20, 41–3, 45, 115, 177, 180, 191, 214, 223, 228; characteristics of, 5–6, 2, 32; conflict with Anywheres, 23, 79, 81, 193, 215; conservatism, 7–8; employment of, 11; European, 103; immigration of, 106; moral institutions, 223–4; political representation/voting patterns of, 13–14, 24–6, 36, 53–5, 77–9, 124, 227; political views of, 71, 76, 109, 112, 119, 199, 218, 224–6, 232; potential coalition with Anywheres, 220, 222, 225–6, 233; view of migrant integration, 134 Sorrell, Martin: 31 Soskice, David: 159 South Korea: 86 Soviet Union (USSR): 92, 188; collapse of (1991), 82, 107 Sowell, Thomas: 30; A Conflict of Visions, 29 Spain: 53, 56, 64, 74; government of, 98; migrants from, 125; property bubble in, 98 Steinem, Gloria: 198 Stenner, Karen: 30, 44, 122, 133, 227; Authoritarian Dynamic, The, 30–1 Stephens, Philip: 108 Sun, The: 227 Sutherland, Peter: 31–2 Sutton Trust: end of mobility thesis, 183–5 Swaziland: 135 Sweden: 56, 70, 100; general elections (2014), 70; Stockholm, 143; taxation system of, 222 Sweden Democrats: 70; electoral performance of (2014), 70; ideology of, 73 Switzerland: 37 Syria: Civil War (2009–), 82, 84 Syriza: 53, 69 Taiwan: 86 Teeside University: 164 terrorism: jihadi, 71, 74, 129 Thatcher, Margaret: 58, 63, 95, 189, 205; administration of, 169; economic policies of, 176 Third Reich (1933–45): 104; persecution of Jews in, 17 Times Education Supplement: 37 Timmermans, Frans: EU Commissioner, 128 Thompson, Mark: Director-General of BBC, 15 trade theory: principles of, 101 Transatlantic Trade and Investment Partnership (TTIP): 89; support for, 225 Trump, Donald: 50, 62, 74, 85; electoral victory of (2016), 1–3, 5–7, 13, 27, 30, 64–8, 81, 232; political rhetoric of, 14, 22–3, 51, 54, 66–7; supporters of, 56, 67 Tube Investments (TI): 172 Turkey: 218 Twitter: use for political activism, 79 Uber: 140 UK Independence Party (UKIP): 53, 55, 63–4, 69, 71–3, 228; electoral performance of (2015), 75; European election performance (2009), 71–2; members of, 13; origins of, 72; supporters of, 24, 35, 38, 72, 75, 143, 168, 216, 222 ultimatum game: 52 Understanding Society: surveys conducted by, 37–8, 202 unemployment: 101–2; gender divide of, 208–9; not in employment, education or training (Neets), 151–2, 190; youth, 139, 151–2, 166 Unilever: 175 United Kingdom (UK): 1–3, 8, 11–12, 21, 27–8, 31, 33, 41, 44, 59–60, 69, 73, 75, 81, 83, 91, 111–12, 147, 165, 173, 180, 193–5, 199, 204, 217, 227; Aberdeen, 136; accession to EEC (1973), 93; Adult Skills budget of, 161, 225; apprenticeship system of, 154, 157, 162–3, 166; Birmingham, 7, 123, 166; Boston, 121; Bradford, 133, 136; Bristol, 136; British Indian population of, 77; Burnley, 151; Cambridge, 136; City of London, 95, 106, 174; class system in, 58–9, 75, 123, 135–6, 149–52, 172, 182–3, 186, 195; Dagenham, 136; Department for Education, 206; Department for International Development (DfID), 224; Divorce Law Reform Act (1969), 196; economy of, 152, 170; Edinburgh, 54, 136; education sector of, 35, 147, 154–8; ethnic Chinese population of, 77; EU citizens in, 101; Finance Act (2014), 211; Foreign and Commonwealth Office (FCO), 224; Glasgow, 136; high-skill/low-skill job disappearance in, 150–1; higher education sector of, 35–7, 47, 159–62, 164–7, 179, 208, 230–1; Home Office, 17; House of Commons, 162; general election in (2015), 60; House of Lords, 31; Human Rights Act, 123, 225; income inequality levels in, 169–70, 172, 177, 184–5; labour market of, 16, 26, 124, 140–1, 148, 150–1, 152, 225; Leicester, 133; Leeds, 161; London, 3–4, 7, 10–11, 18–19, 24, 26, 34, 37, 59, 79, 101, 114–15, 119, 123, 131, 133–45, 151, 168, 216, 218, 226, 228, 232–3; Manchester, 123, 136, 151, 161, 228; manufacturing sector of, 17, 88; mass immigration in, 122–4, 126–7, 228–9; Muslim immigration in, 41–2, 44; Muslim population of, 127, 130; National Health Service (NHS), 72, 91, 111, 120, 140, 144, 200–1, 229; National Insurance system of, 204; Newcastle, 131, 136, 161; Northern Ireland, 38; Office for Fair Access, 180; Office for Standards in Education, Children’s Services and Skills (Ofsted), 155; Office of National Statistics (ONS), 138, 144–5; Oldham, 133; Olympic Games (2012), 111, 143, 222; Oxford, 136; Parliamentary expenses scandal (2009), 56, 168; Plymouth, 131; public sector employment in, 171, 208–9, 229–30; regional identities in, 3–4, 186; Rochdale, 124; Scotland, 110, 138; Scottish independence referendum (2014), 53, 110; self-employment levels in, 171; Sheffield, 161; Slough, 131, 133; social mobility rate in, 58, 184–5, 187; start-ups in, 173–4; Stoke, 121; Sunderland, 52, 172; Supreme Court, 66; taxation system of, 222; Treasury, 16; UK Border Agency, 108; vocational education in, 163; voting patterns for Brexit vote, 7–9, 19–20, 23, 26, 36, 52; wage levels in, 168; Wales, 138; welfare state in, 199–203, 223–4, 231–2; Westminster, 54, 58, 60; youth unemployment in, 151–2 United Nations (UN): 102, 198; Conference on Trade and Development (UNCTAD), 10; Declaration of Human Rights (1948), 109; Geneva Convention (1951), 82–4; High Commission for Refugees (UNHCR), 82, 84; Security Council, 99 United States of America (USA): 1–2, 6–7, 22–3, 36–7, 51, 57, 60, 74, 86, 89, 94, 128, 168, 193, 208, 227; 9/11 Attacks, 130; Agency for International Development (USAID), 224; Asian population of, 68; borders of, 21; Chinese Exclusion Act (1882), 54; class identity in, 65–6; Congress, 67; Constitution of, 57; education system of, 166; higher education sector of, 167; Hispanic population of, 67–8, 85; House of Representatives, 67; immigration debate in, 67–8; Ivy League, 36, 61; New York, 135; political divisions in, 65; Senate, 67 University College London (UCL): Imagining the Future City: London 2061, 137, 139 University of California: 165 University of Kent: 36 University of Sussex: 36 University of Warwick: 36; faculty of, 171 Vietnam War (1955–75): 29 Visegrad Group: 69, 73, 99 Vlaams Belang: ideology of, 73 wages for housework: 194 Walzer, Michael: 117–18 War on Drugs: 62 WEIRD (Western, Educated, Industrialised, Rich and Democratic): 27 Welzel, Christian: Freedom Rising, 27 Westminster University: 165 white flight: 129, 134, 136 white identity politics: 9, 67 white supremacy: 8, 68, 73–4 Whittle, Peter: 144 Wilders, Geert: 50, 76 Willetts, David: 164, 185 Wilson, Harold: electoral victory of (1964), 150 Wolf, Prof Alison: 162, 164–5; XX Factor, The, 189, 198 working class: 2–4, 6, 51–2, 59, 61, 65; conservatism, 8 political representation/views of, 8, 52, 58, 63, 70, 72; progressives, 78–9; voting patterns of, 15, 52, 75–6; white, 19, 68 World Bank: 84 World Trade Organisation (WTO): 10, 85, 89–90, 97; accession of China to (2001), 88 World Values Survey: 27 xenophobia: 2, 14, 50–1, 57, 71, 119, 121, 141, 144, 225 York, Peter: 138 York University: 36 YouGov: personnel of, 78; polls conducted by, 16–17, 42, 66, 79, 114, 132, 141 Young, Hugo: 93 Young, Michael: 119, 190; Rise of the Meritocracy, The, 180–1 Yugoslav Wars (1991–2001): 97 Yugoslavia: 97 Zeman, Milos: President of Czech Republic, 73


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The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom by Jonathan Haidt

coherent worldview, crack epidemic, delayed gratification, feminist movement, hedonic treadmill, Ignaz Semmelweis: hand washing, invisible hand, job satisfaction, Lao Tzu, longitudinal study, meta analysis, meta-analysis, Peter Singer: altruism, PIHKAL and TIHKAL, placebo effect, prisoner's dilemma, Ralph Waldo Emerson, selective serotonin reuptake inhibitor (SSRI), social intelligence, stem cell, telemarketer, the scientific method, twin studies, ultimatum game, Walter Mischel, zero-sum game

T h e "organ" is a metaphor—nobody expects to find an isolated blob of brain tissue the only function of which is to enforce reciprocity. However, recent evidence suggests that there really could be an e x c h a n g e organ in the brain if we loosen the meaning of "organ" and allow that f u n c - tional systems in the brain are often c o m p o s e d of widely separated bits of neural tissue that work together to do a specific job. S u p p o s e you were invited to play the "ultimatum" game, which economists invented16 to study the tension between fairness and greed. It goes like this: Two people c o m e to the lab but never meet. T h e experimenter gives one of them—let's suppose it's not you—twenty one-dollar bills a n d asks her to divide them between the two of you in any way she likes. S h e then gives you an ultimatum: Take it or leave it. T h e catch is that if you leave it, if you say no, you both get nothing.

.- Imagination, Cognition, and personality, 9, 1 85—21 1. Sampson, R. J. (1993). Family management and child development: Insights from social disorganization theory. Vol. 6 of J. McCord (Ed.), Advances in criminological theory (pp. 63—93). New Brunswick, NJ : Transaction Press. Sanfey, A. G., Rilling, J. K., Aronson, J. A., Nystrom, L. E., & C o h e n , J. D. (2003). The neural basis of economic decision-making in the ultimatum game. Science, 300, 1755-1758. Sartre, J. P. (1989/1944). No exit and three other plays. (S. Gilbert, Trans.). New York: Vintage International. Schatzberg, A. F„ Cole, J. O., 8c DeBattista, C. (2003). Manual of Clinical Psychopharmacology, (4th Ed.). Washington, D C : American Psychiatric Publishing. Schkade, D. A., 8c Kahneman, D. (1998). Does living in California make people happy? A focusing illusion in judgments of life satisfaction.


pages: 170 words: 49,193

The People vs Tech: How the Internet Is Killing Democracy (And How We Save It) by Jamie Bartlett

Ada Lovelace, Airbnb, Amazon Mechanical Turk, Andrew Keen, autonomous vehicles, barriers to entry, basic income, Bernie Sanders, bitcoin, blockchain, Boris Johnson, central bank independence, Chelsea Manning, cloud computing, computer vision, creative destruction, cryptocurrency, Daniel Kahneman / Amos Tversky, Dominic Cummings, Donald Trump, Edward Snowden, Elon Musk, Filter Bubble, future of work, gig economy, global village, Google bus, hive mind, Howard Rheingold, information retrieval, Internet of things, Jeff Bezos, job automation, John Maynard Keynes: technological unemployment, Julian Assange, manufacturing employment, Mark Zuckerberg, Marshall McLuhan, Menlo Park, meta analysis, meta-analysis, mittelstand, move fast and break things, move fast and break things, Network effects, Nicholas Carr, off grid, Panopticon Jeremy Bentham, payday loans, Peter Thiel, prediction markets, QR code, ransomware, Ray Kurzweil, recommendation engine, Renaissance Technologies, ride hailing / ride sharing, Robert Mercer, Ross Ulbricht, Sam Altman, Satoshi Nakamoto, Second Machine Age, sharing economy, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, smart cities, smart contracts, smart meter, Snapchat, Stanford prison experiment, Steve Jobs, Steven Levy, strong AI, TaskRabbit, technological singularity, technoutopianism, Ted Kaczynski, the medium is the message, the scientific method, The Spirit Level, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, too big to fail, ultimatum game, universal basic income, WikiLeaks, World Values Survey, Y Combinator

But McLuhan wasn’t a scientist. He didn’t conduct studies or test theories. Fortunately Daniel Kahneman, the academic most associated with examining bias in human decision-making, did. Through decades of empirical research with long-time collaborator Amos Tversky, he pioneered the study of how we take decisions – and especially irrational ones. I won’t recite the Stanford Prison Experiments or the Ultimatum Game, but Kahneman’s main point was that there are two basic systems that govern human behaviour. ‘System one’ thinking is fast, instinctive and emotional. It’s the reptilian brain, running on instinct. By contrast, ‘system two’ thinking is slow, deliberative and more logical.7 It sometimes, but not always, acts as a check on those wilder rages. Modern democracies aspire to run on ‘system two’ logic, and its ideal citizens are McLuhan’s literate man.


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Think Twice: Harnessing the Power of Counterintuition by Michael J. Mauboussin

affirmative action, asset allocation, Atul Gawande, availability heuristic, Benoit Mandelbrot, Bernie Madoff, Black Swan, butter production in bangladesh, Cass Sunstein, choice architecture, Clayton Christensen, cognitive dissonance, collateralized debt obligation, Daniel Kahneman / Amos Tversky, deliberate practice, disruptive innovation, Edward Thorp, experimental economics, financial innovation, framing effect, fundamental attribution error, Geoffrey West, Santa Fe Institute, George Akerlof, hindsight bias, hiring and firing, information asymmetry, libertarian paternalism, Long Term Capital Management, loose coupling, loss aversion, mandelbrot fractal, Menlo Park, meta analysis, meta-analysis, money market fund, Murray Gell-Mann, Netflix Prize, pattern recognition, Philip Mirowski, placebo effect, Ponzi scheme, prediction markets, presumed consent, Richard Thaler, Robert Shiller, Robert Shiller, statistical model, Steven Pinker, The Wisdom of Crowds, ultimatum game

“Illusion and Well-Being: A Social Psychological Perspective on Mental Health.” Psychological Bulletin 103, no. 2 (1988): 193–210. Tetlock, Philip E. Expert Political Judgment: How Good Is It? How Can We Know? Princeton, NJ: Princeton University Press, 2005. Thaler, Richard H. “Anomalies: The Winner’s Curse.” The Journal of Economic Perspectives 2, no. 1 (1988): 191–202. ___. “Anomalies: The Ultimatum Game.” The Journal of Economic Perspectives 2, no. 4 (1988): 195–206. ___. “From Homo Economicus to Homo Sapiens.” The Journal of Economic Perspectives 14, no. 1 (2000): 133–141. Thaler, Richard H., and Cass R. Sunstein. Nudge: Improving Decisions About Health, Wealth, and Happiness. New Haven, CT: Yale University Press, 2008. Thompson, Clive. “If You Liked This, You’re Sure to Love That.”


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The Price of Inequality: How Today's Divided Society Endangers Our Future by Joseph E. Stiglitz

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, airline deregulation, Andrei Shleifer, banking crisis, barriers to entry, Basel III, battle of ideas, Berlin Wall, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, collapse of Lehman Brothers, collective bargaining, colonial rule, corporate governance, Credit Default Swap, Daniel Kahneman / Amos Tversky, Dava Sobel, declining real wages, deskilling, Exxon Valdez, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, framing effect, full employment, George Akerlof, Gini coefficient, income inequality, income per capita, indoor plumbing, inflation targeting, information asymmetry, invisible hand, jobless men, John Harrison: Longitude, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, London Interbank Offered Rate, lone genius, low skilled workers, Marc Andreessen, Mark Zuckerberg, market bubble, market fundamentalism, mass incarceration, medical bankruptcy, microcredit, moral hazard, mortgage tax deduction, negative equity, obamacare, offshore financial centre, paper trading, Pareto efficiency, patent troll, Paul Samuelson, payday loans, price stability, profit maximization, profit motive, purchasing power parity, race to the bottom, rent-seeking, reserve currency, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, Simon Kuznets, spectrum auction, Steve Jobs, technology bubble, The Chicago School, The Fortune at the Bottom of the Pyramid, The Myth of the Rational Market, The Spirit Level, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transaction costs, trickle-down economics, ultimatum game, uranium enrichment, very high income, We are the 99%, wealth creators, women in the workforce, zero-sum game

Standard economic theory provides a clear prediction: the first player keeps all of the $100 for himself. Yet in practice, the first player gives the second something, though usually less than half.14 A related experiment gives even stronger evidence of the importance that individuals attach to fairness: most individuals would rather accept an inefficient outcome—even hurting themselves—than an unfair one. In what is known as the ultimatum game, the second player has the right to veto the division proposed by the first player. If the second player exercises his veto, neither party gets anything. Standard economic theory suggests a clear strategy: the first player keeps 99 dollars for himself, giving 1 dollar to the other player, who accepts it, because 1 dollar is better than zero. In fact, offers typically average about 30 to 40 dollars (or 30–40 percent of the total sum in a game with different quantities), and the second player tends to veto the allocation if he is offered less than 20 dollars.15 He is willing to accept some inequity—he realizes he is in the less powerful position—but there is a limit to how much inequity he will stand for.

It shows that fairness is construed not, or not only, in terms of what the other player gets, but also in terms of what the other player gets relative to his worst possible outcome. The realization that he could abuse the second player even more, by taking something from him, makes the first player feel better about a more unfair division. See List, “On the Interpretation of Giving in Dictator Games,” Journal of Political Economy 115, no. 3 (2007): 482–93. 15. For a discussion of these outcomes (and the sums people will accept or veto in ultimatum games), see Colin Camerer and Richard Thaler, “Anomalies: Ultimatums, Dictators and Manners,” Journal of Economic Perspectives 9, no. 2 (1995): 209–19. 16. For a sample of the large literature, see, e.g., Daniel Kahneman, Jack L. Knetsch, and Richard H. Thaler, “Fairness and the Assumptions of Economics,” Journal of Business 59, no. 4 (1986): S285–S300; Gary E. Bolton and Axel Ockenfels, “ERC: A Theory of Equity, Reciprocity, and Competition,” American Economic Review 90, no. 1 (March 2000): 166–93; Armin Falk, Ernst Fehr, and Urs Fischbacher, “On the Nature of Fair Behavior,” Economic Inquiry 41, no. 1 (January 2003): 20–26; Daniel Kahneman, Jack L.


pages: 614 words: 174,226

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

"Robert Solow", airline deregulation, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, ending welfare as we know it, financial deregulation, financial innovation, fixed income, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Growth in a Time of Debt, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Long Term Capital Management, low cost airline, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, oil shock, Paul Samuelson, Philip Mirowski, plutocrats, Plutocrats, price stability, profit motive, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Peltzman, Silicon Valley, Simon Kuznets, starchitect, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus

It offered the following choice: (A) Everyone gets £4 per week. (B) You get £5 per week, but some people get £6 per week. Eighty percent of respondents picked the first option, forgoing £1 per week because other people would get more.40 “Homo economicus is usually assumed to care about wealth more than such issues as fairness and justice,” says the behavioral economist Richard Thaler. “The research on ultimatum games belies such easy characterizations.”41 Sometimes, the right answer is to do without a market. Congressional committees reserve at least a few seats at every hearing for the general public. The first people in line, however, generally have no interest in attending the hearing. They are paid to stand in line by companies that save seats, at a hefty price, for lobbyists or other members of the Washington elite.

Amartya Sen, Development as Freedom (New York: Knopf, 1999), 14. 39. Frank H. Knight, Selected Essays by Frank H. Knight, vol. 2, Laissez Faire: Pro and Con, ed. Ross B. Emmett (Chicago: University of Chicago Press, 1999), 14. 40. Samuel Brittan, “The Economic Contradictions of Democracy,” British Journal of Political Science 5, no. 2 (1975): 129–59. 41. Richard H. Thaler, “Anomalies: The Ultimatum Game,” Journal of Economic Perspectives 2, no. 4 (1988): 195–206. 42. Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), 24. Index Abe, Shinzō, ref1 African Americans, ref1, ref2, ref3 airline industry: competition of, ref1, ref2, ref3, ref4, ref5, ref6, ref7; deregulation of, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10; economic regulation of, ref1, ref2, ref3, ref4, ref5, ref6 Alchian, Armen, ref1, ref2, ref3 Alesina, Alberto, ref1, ref2 Alessandri, Jorge, ref1, ref2 Alexis, Marcus, ref1 Allende, Salvador, ref1, ref2, ref3, ref4 American Economic Association, ref1, ref2, ref3, ref4, ref5, ref6 American Enterprise Institute, ref1, ref2, ref3, ref4, ref5 Anderson, John, ref1, ref2 Anderson, Martin: and Arthur Burns, ref1; and Milton Friedman, ref1, ref2; and Richard Nixon, ref1, ref2, ref3; and Ronald Reagan, ref1, ref2, ref3, ref4 Angermueller, Hans H., ref1 antitrust regulation: Robert Bork on, ref1, ref2, ref3, ref4; and Jimmy Carter, ref1, ref2; and corporations, ref1, ref2, ref3, ref4, ref5, ref6, ref7, ref8, ref9, ref10; and efficiency, ref1, ref2, ref3, ref4, ref5; and Barack Obama, ref1; George Stigler on, ref1, ref2, ref3, ref4, ref5, ref6; and U.S.


pages: 208 words: 67,582

What About Me?: The Struggle for Identity in a Market-Based Society by Paul Verhaeghe

Berlin Wall, call centre, cognitive dissonance, deskilling, epigenetics, Fall of the Berlin Wall, Francis Fukuyama: the end of history, income inequality, invisible hand, jimmy wales, job satisfaction, knowledge economy, knowledge worker, Louis Pasteur, market fundamentalism, Milgram experiment, new economy, Panopticon Jeremy Bentham, post-industrial society, Richard Feynman, Silicon Valley, Stanford prison experiment, stem cell, The Spirit Level, ultimatum game, working poor

The human variant is a decision taken online by anonymous shareholders that has extremely negative consequences for unseen workers. Modern warfare is an even better example: when you’re looking at a screen, killing isn’t so very different from playing computer games. Even the consoles are identical.) Interestingly, the above two experiments were based on an economic experiment involving human participants, known as the ultimatum game. Two players take part. One of them can decide how a sum of money is to be divided between them. The other can either accept or reject the proposal; if it is rejected, neither gets anything. Note that neither player has to do anything to get the money; it’s just about distribution. Time and again, it emerges that the second player would rather go empty-handed than accept a proposal whereby he or she gets a little and the other gets a lot, ‘because that isn’t fair’.


pages: 265 words: 69,310

What's Yours Is Mine: Against the Sharing Economy by Tom Slee

4chan, Airbnb, Amazon Mechanical Turk, asset-backed security, barriers to entry, Berlin Wall, big-box store, bitcoin, blockchain, citizen journalism, collaborative consumption, congestion charging, Credit Default Swap, crowdsourcing, data acquisition, David Brooks, don't be evil, gig economy, Hacker Ethic, income inequality, informal economy, invisible hand, Jacob Appelbaum, Jane Jacobs, Jeff Bezos, Khan Academy, Kibera, Kickstarter, license plate recognition, Lyft, Marc Andreessen, Mark Zuckerberg, move fast and break things, move fast and break things, natural language processing, Netflix Prize, Network effects, new economy, Occupy movement, openstreetmap, Paul Graham, peer-to-peer, peer-to-peer lending, Peter Thiel, pre–internet, principal–agent problem, profit motive, race to the bottom, Ray Kurzweil, recommendation engine, rent control, ride hailing / ride sharing, sharing economy, Silicon Valley, Snapchat, software is eating the world, South of Market, San Francisco, TaskRabbit, The Nature of the Firm, Thomas L Friedman, transportation-network company, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, ultimatum game, urban planning, WikiLeaks, winner-take-all economy, Y Combinator, Zipcar

People giving blood for social reasons will naturally avoid giving if they do not meet the blood system’s requirements, but people giving for money are more likely to give even if their blood may be dangerous to recipients. Screening becomes far more important. There are many other examples where money and gifts are not interchangeable. Sending flowers after a date means one thing, leaving a $50 bill means something else. Offering someone money to step ahead of them in a supermarket queue is unlikely to be successful. Paying money for votes is incompatible with the democratic process. The “Ultimatum Game,” a simple two-player exercise that illustrates cultural notions of fairness, shows why alienation increases along with the money involved. In this game, a pot of $100 is assigned to one player, who must make a take-it-or-leave-it offer of a portion of the pot to a second player. The size of the offer is up to the first player. If the second player accepts the offer then both take their portion of the pot, but if the second player rejects the offer then the pot must be returned and both players are left penniless.


pages: 603 words: 182,826

Owning the Earth: The Transforming History of Land Ownership by Andro Linklater

agricultural Revolution, anti-communist, Anton Chekhov, Ayatollah Khomeini, Big bang: deregulation of the City of London, British Empire, business cycle, colonial rule, Corn Laws, corporate governance, creative destruction, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, facts on the ground, Francis Fukuyama: the end of history, full employment, Gini coefficient, Google Earth, income inequality, invisible hand, James Hargreaves, James Watt: steam engine, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kibera, Kickstarter, land reform, land tenure, light touch regulation, market clearing, means of production, megacity, Mikhail Gorbachev, Mohammed Bouazizi, Monkeys Reject Unequal Pay, mortgage debt, Northern Rock, Peace of Westphalia, Pearl River Delta, plutocrats, Plutocrats, Ponzi scheme, profit motive, quantitative easing, Ralph Waldo Emerson, refrigerator car, Right to Buy, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, spinning jenny, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade route, transatlantic slave trade, transcontinental railway, ultimatum game, wage slave, WikiLeaks, wikimedia commons, working poor

Yet unmistakably, the subjects’ behavior changed in reaction to a perceived disparity of reward; as one otherwise skeptical researcher put it, “seeing another individual receive high-quality food creates the expectation to receive the same food.” Human experiments involving games such as Prisoner’s Dilemma (two prisoners each with the choice of staying silent or betraying the other) and the Ultimatum Game (sharing out of money so that each of two players is satisfied) gave rise to equally irrational behavior. Alongside the understandable selfishness of homo economicus who could be expected to maximize his own gain ran an equally deep-seated sense of injustice, so strong it could operate against the best interests of the individual. Thus in the Ultimatum Game, where one person was given one hundred dollars with the proviso that the money had to be shared with a second person or it would be lost, the second person, who theoretically should have been happy to receive any share because it represented pure gain, was almost always ready to refuse a sum less than what he or she considered a fair share (usually somewhere between twenty and fifty dollars), even though it deprived both participants of any gain.


pages: 789 words: 207,744

The Patterning Instinct: A Cultural History of Humanity's Search for Meaning by Jeremy Lent

"Robert Solow", Admiral Zheng, agricultural Revolution, Albert Einstein, Alfred Russel Wallace, Atahualpa, Benoit Mandelbrot, Bretton Woods, British Empire, Buckminster Fuller, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, commoditize, complexity theory, conceptual framework, dematerialisation, demographic transition, different worldview, Doomsday Book, en.wikipedia.org, European colonialism, failed state, Firefox, Francisco Pizarro, Georg Cantor, happiness index / gross national happiness, hedonic treadmill, income inequality, Intergovernmental Panel on Climate Change (IPCC), Internet of things, invention of gunpowder, invention of writing, Isaac Newton, Johann Wolfgang von Goethe, Johannes Kepler, Lao Tzu, Law of Accelerating Returns, mandelbrot fractal, mass immigration, megacity, Metcalfe's law, Mikhail Gorbachev, Nicholas Carr, Norbert Wiener, oil shale / tar sands, out of africa, peak oil, Pierre-Simon Laplace, QWERTY keyboard, Ray Kurzweil, Sapir-Whorf hypothesis, Scientific racism, scientific worldview, shareholder value, sharing economy, Silicon Valley, Simon Kuznets, social intelligence, South China Sea, Stephen Hawking, Steven Pinker, technological singularity, the scientific method, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, Turing test, ultimatum game, urban sprawl, Vernor Vinge, wikimedia commons

And the good news is, you're allowed to decide exactly how you want to split it. But there's a catch: you can only propose one split. The person in the other room will be told the split and can either accept it or reject it. If he accepts it, the money is shared accordingly. If he rejects it, you'll both get nothing. Welcome to the ultimatum game. If you're like most people, you'll decide to split the hundred dollars down the middle, so you get fifty, the other person will accept his fifty, and you'll both be ahead. Researchers view the ultimatum game as convincing evidence that refutes the earlier view of humans as fundamentally self-interested. If that were the case, then you (the proposer) would be more likely to keep, say, ninety dollars and offer ten to the other stranger (the responder). The responder would accept ten dollars because, being self-interested, he would be happier with that than nothing.


pages: 411 words: 80,925

What's Mine Is Yours: How Collaborative Consumption Is Changing the Way We Live by Rachel Botsman, Roo Rogers

Airbnb, barriers to entry, Bernie Madoff, bike sharing scheme, Buckminster Fuller, buy and hold, carbon footprint, Cass Sunstein, collaborative consumption, collaborative economy, commoditize, Community Supported Agriculture, credit crunch, crowdsourcing, dematerialisation, disintermediation, en.wikipedia.org, experimental economics, George Akerlof, global village, hedonic treadmill, Hugh Fearnley-Whittingstall, information retrieval, iterative process, Kevin Kelly, Kickstarter, late fees, Mark Zuckerberg, market design, Menlo Park, Network effects, new economy, new new economy, out of africa, Parkinson's law, peer-to-peer, peer-to-peer lending, peer-to-peer rental, Ponzi scheme, pre–internet, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, Simon Kuznets, Skype, slashdot, smart grid, South of Market, San Francisco, Stewart Brand, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thorstein Veblen, Torches of Freedom, transaction costs, traveling salesman, ultimatum game, Victor Gruen, web of trust, women in the workforce, Zipcar

How does a system that shuttles vast quantities of used goods among distant strangers work so well? For decades behavioral economists wondered whether our sense of fairness is as much a part of human nature as is our obvious sense of competition. The answer to this question is critical to redistribution markets. People’s ability to determine what is fair and what is not plays a big role in making these peer-to-peer reuse systems work. In the “ultimatum game,” the classic experiment in behavioral economics that attempts to understand how fairness works, two people are paired together. Player A, randomly assigned, is known as the proposer. He or she is handed a sum of ten $1 bills (the total amount is irrelevant). The proposer’s job is to decide how the $10 should be split and to make an offer. No dialogue or negotiation between the players is allowed.


pages: 266 words: 87,411

The Slow Fix: Solve Problems, Work Smarter, and Live Better in a World Addicted to Speed by Carl Honore

Albert Einstein, Atul Gawande, Broken windows theory, call centre, Checklist Manifesto, clean water, clockwatching, cloud computing, crowdsourcing, Dava Sobel, delayed gratification, drone strike, Enrique Peñalosa, Erik Brynjolfsson, Ernest Rutherford, Exxon Valdez, fundamental attribution error, game design, income inequality, index card, invention of the printing press, invisible hand, Isaac Newton, Jeff Bezos, John Harrison: Longitude, lateral thinking, lone genius, medical malpractice, microcredit, Netflix Prize, planetary scale, Ralph Waldo Emerson, RAND corporation, shareholder value, Silicon Valley, Skype, stem cell, Steve Jobs, Steve Wozniak, the scientific method, The Wisdom of Crowds, ultimatum game, urban renewal, War on Poverty

Even when we think we are being rational and logical, we are often guided by feelings. Over the years, economists, sociologists and psychologists have amassed a library of research showing that emotion, and the biases it can trigger, often trumps rationality. You may believe in racial equality, yet you still clutch your handbag more tightly when you see someone like Lewis Price ghetto-limping towards you on an empty street. Or consider an experiment known as the ultimatum game, in which two subjects – let’s call them Max and Mary – are given $10 and invited to share it. Max proposes how to divvy up the cash and Mary can either accept or reject his one-time proposal. If she turns down his offer, neither receives any money. In a purely rational world Mary would accept every proposal from Max apart from a split that gave him all the cash. Even if Max proposes to keep $9.99 for himself, Mary still goes home one penny better off.


pages: 302 words: 83,116

SuperFreakonomics by Steven D. Levitt, Stephen J. Dubner

agricultural Revolution, airport security, Andrei Shleifer, Atul Gawande, barriers to entry, Bernie Madoff, Boris Johnson, call centre, clean water, cognitive bias, collateralized debt obligation, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, deliberate practice, Did the Death of Australian Inheritance Taxes Affect Deaths, disintermediation, endowment effect, experimental economics, food miles, indoor plumbing, Intergovernmental Panel on Climate Change (IPCC), John Nash: game theory, Joseph Schumpeter, Joshua Gans and Andrew Leigh, longitudinal study, loss aversion, Louis Pasteur, market design, microcredit, Milgram experiment, oil shale / tar sands, patent troll, presumed consent, price discrimination, principal–agent problem, profit motive, randomized controlled trial, Richard Feynman, Richard Thaler, selection bias, South China Sea, Stanford prison experiment, Stephen Hawking, The Wealth of Nations by Adam Smith, too big to fail, trickle-down economics, ultimatum game, urban planning, William Langewiesche, women in the workforce, young professional

., 16 Teller, Edward, 181 terrorism aftereffects of, 66 and banks, 89–95 bio-, 74 costs of, 65–66, 87 definitions of, 63–64 effectiveness of, 65 prevention of, 87–92 purpose of, 64 terrorists biographical background of, 62–63 goals of, 63–64 identification of possible, 90–95 and life insurance, 94 methods used by, 88 and profiles of, 90–95 revolutionaries as different from, 63–64 See also September 11, 2001 Thirty-Eight Witnesses (Rosenthal), 126 Thomas, Frank, 116 Time magazine, shark story in, 14 Title IX, 22 “To Err Is Human” (Institute of Medicine report), 204 “too big to fail,” 143 traffic deaths, 65–66, 87 trash-pickup fees, 139 trees, and climate, 186 trimmers, price of, 35 trophy wives, 52–53 Trotsky, Leon, 63 trust and altruism, 116,117 and baseball card experiment, 116,117 typical behavior, 13–14,15–16 Uganda, babies in, 57–58 Ultimatum (game), 108–9, 110, 113 unintended consequences, law of, 6–8, 12, 138–41 United Kingdom banks in, 89–95 climate change in, 166 University of Chicago List appointment at, 118 MBA study of graduates of, 45–46 urban planning conference, and horse problem, 10 users versus sellers, 25–26 Variable X, 95 Vaux, Calvert, 42 Venkatesh, Sudhir, 26, 28, 29, 30, 32–37, 38, 40–42, 70–71 Vice Commission, Chicago, 23–24, 26 Vienna General Hospital (Austria), 137–38, 203–4 Vietnam War, 146 violence and prostitutes, 38 visas, 66 volcanic eruptions, 176–77, 188–90, 192 volunteers, in experiments, 121 Vonnegut, Bernard, 191 Vonnegut, Kurt, 191 wages and gender issues, 21–22, 44, 45–47 as incentives, 46–47 and sex-change operations, 47–48 teachers and, 44 walking, drunk, 2–3, 12, 14, 96 “war on drugs,” 25 warm-glow altruism, 124 washing hands, 203–8, 209 Washington, D.C., shootings in, 64, 66 Washington Hospital Center emergency medicine at, 66–73, 75, 81 and September 11, 66–67, 68 Weber, Christopher, 167 Weitzman, Martin, 11, 12, 169 welfare program, data about, 27–28 whaling, 142–43 white slavery, 23 wind farms, 187 wind-powered fiberglass boats, 202 Wiswall, Matthew, 48 women as CEOs, 44–45 difficulties of, 20–22 discrimination against, 21–22, 45 as doctors, 80–81 as dominant in prostitution, 23–26, 40 and feminist revolution, 43–44 in India, 3–8, 14 men compared with, 20–21 as prostitutes, 54–55 shift in role of, 43–44 in sports, 22 as teachers, 43, 44 wages for, 21–22, 44, 45–46 Women’s National Basketball Association (WNBA), 22 Wood, Lowell, 181,182,184–85,186, 192,194,197,198–99 World Health Organization (WHO), 5 World Trade Center, 15 World War II, use of data in, 147 Yale-New Haven Hospital, monkey experiment at, 212–16 Zelizer, Viviana, 200 Zimbardo, Philip, 123 Zyzmor, Albert, 59 About the Authors STEVEN D.


The Darwin Economy: Liberty, Competition, and the Common Good by Robert H. Frank

carbon footprint, carried interest, Cass Sunstein, clean water, congestion charging, corporate governance, deliberate practice, full employment, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Paul Samuelson, plutocrats, Plutocrats, positional goods, profit motive, Ralph Nader, rent control, Richard Thaler, Ronald Coase, Ronald Reagan, sealed-bid auction, smart grid, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, trickle-down economics, ultimatum game, winner-take-all economy

The first fan is probably guilty of a cognitive error. People typically seem to regret the decisions they make on the basis of such errors once they become aware of them. Under the “. . . without Regret” heading, I listed studies that describe departures from the predictions of standard rational choice models that people do not seem to regret. A case in point is the way people typically react to one-sided offers in the so-called ultimatum game. In this game, the experimenter gives one subject some money—say, $100—and then tells him to propose a division of that sum between himself and a second subject. If the second accepts, each walks away with the amount proposed. For instance, if the first proposes “$60 for me and $40 for you” and the second accepts, the first gets $60 and the second gets $40. But here’s the twist: if the second subject rejects the proposal, the $100 reverts to the experimenter, and each subject receives nothing.


pages: 1,737 words: 491,616

Rationality: From AI to Zombies by Eliezer Yudkowsky

Albert Einstein, Alfred Russel Wallace, anthropic principle, anti-pattern, anti-work, Arthur Eddington, artificial general intelligence, availability heuristic, Bayesian statistics, Berlin Wall, Build a better mousetrap, Cass Sunstein, cellular automata, cognitive bias, cognitive dissonance, correlation does not imply causation, cosmological constant, creative destruction, Daniel Kahneman / Amos Tversky, dematerialisation, different worldview, discovery of DNA, Douglas Hofstadter, Drosophila, effective altruism, experimental subject, Extropian, friendly AI, fundamental attribution error, Gödel, Escher, Bach, hindsight bias, index card, index fund, Isaac Newton, John Conway, John von Neumann, Long Term Capital Management, Louis Pasteur, mental accounting, meta analysis, meta-analysis, money market fund, Nash equilibrium, Necker cube, NP-complete, P = NP, pattern recognition, Paul Graham, Peter Thiel, Pierre-Simon Laplace, placebo effect, planetary scale, prediction markets, random walk, Ray Kurzweil, reversible computing, Richard Feynman, risk tolerance, Rubik’s Cube, Saturday Night Live, Schrödinger's Cat, scientific mainstream, scientific worldview, sensible shoes, Silicon Valley, Silicon Valley startup, Singularitarianism, Solar eclipse in 1919, speech recognition, statistical model, Steven Pinker, strong AI, technological singularity, The Bell Curve by Richard Herrnstein and Charles Murray, the map is not the territory, the scientific method, Turing complete, Turing machine, ultimatum game, X Prize, Y Combinator, zero-sum game

And in fact, most Ultimatum “deciders” offer an even split; and most Ultimatum “accepters” reject any offer less than 20%. A 100 USD game played in Indonesia (average per capita income at the time: 670 USD) showed offers of 30 USD being turned down, although this equates to two week’s wages. We can probably also assume that the players in Indonesia were not thinking about the academic debate over Newcomblike problems—this is just the way people feel about Ultimatum Games, even ones played for real money. There’s an analogue of the Ultimatum Game in group coordination. (Has it been studied? I’d hope so . . .) Let’s say there’s a common project—in fact, let’s say that it’s an altruistic common project, aimed at helping mugging victims in Canada, or something. If you join this group project, you’ll get more done than you could on your own, relative to your utility function. So, obviously, you should join.

Oh, and it goes without saying that if the people of Group X are staring at you demandingly, waiting for you to hate the right enemies with the right intensity, and ready to castigate you if you fail to castigate loudly enough, you may be hanging around the wrong group. Just don’t demand that everyone you work with be equally intolerant of behavior like that. Forgive your friends if some of them suggest that maybe Group X wasn’t so awful after all . . . * 319 Your Price for Joining In the Ultimatum Game, the first player chooses how to split $10 between themselves and the second player, and the second player decides whether to accept the split or reject it—in the latter case, both parties get nothing. So far as conventional causal decision theory goes (two-box on Newcomb’s Problem, defect in Prisoner’s Dilemma), the second player should prefer any non-zero amount to nothing. But if the first player expects this behavior—accept any non-zero offer—then they have no motive to offer more than a penny.

Possibly because we’re out of the ancestral environment where everyone knows everyone else . . . and possibly because the nonconformist crowd tries to repudiate normal group-cohering forces like conformity and leader-worship . . . . . . It seems to me that people in the atheist / libertarian / technophile / science fiction fan / etc. cluster often set their joining prices way way way too high. Like a 50-way split Ultimatum game, where every one of 50 players demands at least 20% of the money. If you think how often situations like this would have arisen in the ancestral environment, then it’s almost certainly a matter of evolutionary psychology. System 1 emotions, not System 2 calculation. Our intuitions for when to join groups, versus when to hold out for more concessions to our own preferred way of doing things, would have been honed for hunter-gatherer environments of, e.g., 40 people, all of whom you knew personally.


pages: 901 words: 234,905

The Blank Slate: The Modern Denial of Human Nature by Steven Pinker

affirmative action, Albert Einstein, Alfred Russel Wallace, anti-communist, British Empire, clean water, cognitive dissonance, Columbine, conceptual framework, correlation coefficient, correlation does not imply causation, cuban missile crisis, Daniel Kahneman / Amos Tversky, Defenestration of Prague, desegregation, epigenetics, Exxon Valdez, George Akerlof, germ theory of disease, ghettoisation, glass ceiling, Hobbesian trap, income inequality, invention of agriculture, invisible hand, Joan Didion, long peace, meta analysis, meta-analysis, More Guns, Less Crime, Murray Gell-Mann, mutually assured destruction, Norman Mailer, Peter Singer: altruism, phenotype, plutocrats, Plutocrats, Potemkin village, prisoner's dilemma, profit motive, QWERTY keyboard, Richard Feynman, Richard Thaler, risk tolerance, Robert Bork, Rodney Brooks, Saturday Night Live, social intelligence, speech recognition, Stanford prison experiment, stem cell, Steven Pinker, The Bell Curve by Richard Herrnstein and Charles Murray, the new new thing, theory of mind, Thomas Malthus, Thorstein Veblen, twin studies, ultimatum game, urban renewal, War on Poverty, women in the workforce, Yogi Berra, zero-sum game

You owe it to me. Obligation; debt; favour; bargain; contract; exchange; deal…. Our language and our lives are permeated with ideas of reciprocity.49 Studies of altruism by behavioral economists have thrown a spotlight on this sword of Damocles by showing that people are neither the amoral egoists of classical economic theory nor the all-for-one-and-one-for-all communal-ists of utopian fantasies. In the Ultimatum Game, for example, one participant gets a large sum of money to divide between himself and another participant, and the second one can take it or leave it. If he leaves it, neither side gets anything. A selfish proposer would keep the lion’s share; a selfish respondent would accept the remaining crumbs, no matter how small, because part of a loaf is better than none. In reality the proposer tends to offer almost half of the total sum, and the respondent doesn’t settle for much less than half, even though turning down a smaller share is an act of spite that deprives both participants.

Sur, Mriganka Switzerland symbiosis Symons, Donald Szathmáry, Eörs Take Our Daughters to Work Day Taliban Tasmania Taylor, Joan Kennedy Tay-Sachs technology Tennyson, Alfred, Lord testosterone see also androgens Tetlock, Philip thalamus Thaler, Richard Thatcher, Margaret theory of mind art and chimpanzees and culture learning and Theory of Moral Sentiments, The (Smith) Thomas, Elizabeth Marshall Thornhill, Nancy Wilmsen Thornhill, Randy thought, language and “Thousand and One Nights, The” Thucydides Tierney, Patrick Tiger, Lionel Tilghman, Shirley Tinbergen, Niko tobacco industry Todorov, Tzvetan Tolstoy, Leo Tooby, John toolmaking Tootsie totalitarianism trade Traffic Tragic Vision traits: emergenic heritability of Machiavellian Trivers, Robert Trudeau, Pierre Truman, Harry S. Tuchman, Barbara Turkheimer, Eric Turner, Frederick Turner, Mark Turner, Terence Turner’s syndrome Tversky, Amos Twain, Mark twin studies 2001: A Space Odyssey Ultimatum game United Nations United States Universal Declaration of Human Rights Universal Grammar Universal People universals, human see also specific topics Updike, John urban renewal usury utopianism Utopian Vision Valian, Virginia Vanatinai van Buren, Abigail van Gogh, Vincent Vasquez, John Veblen, Thorstein vegetarianism Venter, Craig Verbal Behavior (Skinner) Vietnam War violence fear and feuds and honor and morality and prevention of as public health problem Violence Initiative visual illusions visual system arts and Vonnegut, Kurt Waddington, C.


Rockonomics: A Backstage Tour of What the Music Industry Can Teach Us About Economics and Life by Alan B. Krueger

accounting loophole / creative accounting, Affordable Care Act / Obamacare, Airbnb, autonomous vehicles, bank run, Berlin Wall, bitcoin, Bob Geldof, butterfly effect, buy and hold, creative destruction, crowdsourcing, disintermediation, diversified portfolio, Donald Trump, endogenous growth, George Akerlof, gig economy, income inequality, index fund, invisible hand, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kickstarter, Live Aid, Mark Zuckerberg, Moneyball by Michael Lewis explains big data, moral hazard, Network effects, obamacare, offshore financial centre, Paul Samuelson, personalized medicine, pre–internet, price discrimination, profit maximization, random walk, recommendation engine, rent-seeking, Richard Thaler, ride hailing / ride sharing, Saturday Night Live, Skype, Steve Jobs, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, ultimatum game, winner-take-all economy, women in the workforce, Y Combinator, zero-sum game

As Palmer says, “I’ve been struggling since I got off my label in 2008 to find the right platform for ongoing support, through which I can release constant material (and get paid).” She has also used Kickstarter to crowdfund the cost of producing music and videos.23 The Radiohead experiment demonstrated something else, which had already been discovered in countless pie-splitting economic experiments: not everyone is motivated purely by self-interest. In two-person pie-splitting experiments (often called the Ultimatum Game), the first player makes a proposal about how to divide a fixed pie, say $100, between herself and a second player. The second player can accept or reject the proposal. If the proposal is rejected, both players get nothing; if the proposal is accepted, the players divide the pie along the lines the first player proposed. If you were the first player, how much would you offer the second player in this situation?


pages: 412 words: 115,266

The Moral Landscape: How Science Can Determine Human Values by Sam Harris

Albert Einstein, banking crisis, Bayesian statistics, cognitive bias, end world poverty, endowment effect, energy security, experimental subject, framing effect, hindsight bias, impulse control, John Nash: game theory, longitudinal study, loss aversion, meta analysis, meta-analysis, out of africa, pattern recognition, placebo effect, Ponzi scheme, Richard Feynman, risk tolerance, scientific worldview, stem cell, Stephen Hawking, Steven Pinker, the scientific method, theory of mind, ultimatum game, World Values Survey

., & Smith, S. (2002). Improved optimization for the robust and accurate linear registration and motion correction of brain images. Neuroimage, 17 (2), 825–841. Jenkinson, M., & Smith, S. (2001). A global optimisation method for robust affine registration of brain images. Med Image Anal, 5 (2), 143–156. Jensen, K., Call, J., & Tomasello, M. (2007). Chimpanzees are rational maximizers in an ultimatum game. Science, 318 (5847), 107–109. Jensen, K., Hare, B., Call, J., & Tomasello, M. (2006). What’s in it for me? Self-regard precludes altruism and spite in chimpanzees. Proc Biol Sci, 273 (1589), 1013–1021. Johnson, S. A., Stout, J. C., Solomon, A. C., Langbehn, D. R., Aylward, E. H., Cruce, C. B., et al. (2007). Beyond disgust: Impaired recognition of negative emotions prior to diagnosis in Huntington’s disease.


pages: 539 words: 139,378

The Righteous Mind: Why Good People Are Divided by Politics and Religion by Jonathan Haidt

affirmative action, Black Swan, cognitive bias, illegal immigration, impulse control, income inequality, index card, invisible hand, lateral thinking, meta analysis, meta-analysis, Monkeys Reject Unequal Pay, Necker cube, Nelson Mandela, out of africa, Peter Singer: altruism, phenotype, Ralph Waldo Emerson, Richard Thaler, Ronald Reagan, social intelligence, social web, stem cell, Steven Pinker, The Spirit Level, theory of mind, Thomas Malthus, Tony Hsieh, ultimatum game

“Cooperation and the In-Group-Out-Group Bias: A Field Test on Israeli Kibbutz Members and City Residents.” Journal of Economic Behavior and Organization 60:147–63. Russell, B. 2004/1946. History of Western Philosophy. London: Routledge. Saltzstein, H. D., and T. Kasachkoff. 2004. “Haidt’s Moral Intuitionist Theory.” Review of General Psychology 8:273–82. Sanfey, A. G., J. K. Rilling, J. A. Aronson, L. E. Nystrom, and J. D. Cohen. 2003. “The Neural Basis of Economic Decision-Making in the Ultimatum Game.” Science 300:1755–58. Schaller, M., and J. H. Park. 2011. “The Behavioral Immune System (and Why It Matters).” Current Directions in Psychological Science 20:99–103. Scham, S. 2008. “The World’s First Temple.” Archaeology 61, November/December, online article. Scherer, K. R. 1984. “On the Nature and Function of Emotion: A Component Process Approach.” In Approaches to Emotion, ed. K. R. Scherer and P.


pages: 807 words: 154,435

Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

"Robert Solow", Airbus A320, Albert Einstein, Albert Michelson, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Benoit Mandelbrot, bitcoin, Black Swan, Bonfire of the Vanities, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, easy for humans, difficult for computers, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Hans Rosling, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Moneyball by Michael Lewis explains big data, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, oil shock, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, popular electronics, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, World Values Survey, Yom Kippur War, zero-sum game

., ‘The Allais Paradox and its Immediate Consequences for Expected Utility Theory’ in Fontaine, P. and Leonard, R. (eds), The Experiment in the History of Economics (London: Routledge, 2005), 25–49 Janis, I. L., Victims of Groupthink: A Psychological Study of Foreign Policy Decisions and Fiascoes (New York: Houghton Mifflin, 1972) Jensen, K., Call, J. and Tomasello, M., ‘Chimpanzees are Rational Maximizers in an Ultimatum Game’, Science , Vol. 318, No. 5847 (2007), 107–9 Jevons, W. S., The Coal Question: An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coal-Mines (1865) Jevons, W. S., ‘Commercial Crises and Sun-spots’, Nature , Vol. 19 (1878), 33–7 Joint Committee of the European Supervisory Authorities, ‘Questions and Answers (Q&A) on the PRIIPs KID’ (4 July 2017) < https://esas-joint-committee.europa.eu/Publications/Consultations/Questions%20and%20answers%20on%20the%20PRIIPs%20KID.pdf > (accessed 9 Oct 2018) Kafka, F.


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Traffic: Why We Drive the Way We Do (And What It Says About Us) by Tom Vanderbilt

Albert Einstein, autonomous vehicles, availability heuristic, Berlin Wall, call centre, cellular automata, Cesare Marchetti: Marchetti’s constant, cognitive dissonance, computer vision, congestion charging, Daniel Kahneman / Amos Tversky, DARPA: Urban Challenge, endowment effect, extreme commuting, fundamental attribution error, Google Earth, hedonic treadmill, hindsight bias, hive mind, if you build it, they will come, impulse control, income inequality, Induced demand, invisible hand, Isaac Newton, Jane Jacobs, John Nash: game theory, Kenneth Arrow, lake wobegon effect, loss aversion, megacity, Milgram experiment, Nash equilibrium, Sam Peltzman, Silicon Valley, statistical model, the built environment, The Death and Life of Great American Cities, traffic fines, ultimatum game, urban planning, urban sprawl, women in the workforce, working poor

“I feel like that happens a lot on the road,” says Phelan. “Somebody waves you over to get in the turn lane. I get these unjustified warm feelings about the world, that there’s kindness in it and everybody’s looking out for each other.” Or someone cuts you off, and the world is a dark, nasty place. In theory, neither should matter all that much, but we seem to react strongly either way. These moments seem like traffic versions of the “ultimatum game,” an experiment used by social scientists that seems to reveal an inherent desire for reciprocal fairness in humans. In the game, one person is given a sum of money and an instruction to share it with another person as they see fit. If the second person accepts the offer, both keep their share; if he or she rejects it, neither gets anything. Researchers have found that people will routinely reject offers that are less than 50 percent, even though this means they walk away with nothing.


pages: 687 words: 189,243

A Culture of Growth: The Origins of the Modern Economy by Joel Mokyr

"Robert Solow", Andrei Shleifer, barriers to entry, Berlin Wall, business cycle, clockwork universe, cognitive dissonance, Copley Medal, creative destruction, David Ricardo: comparative advantage, delayed gratification, deliberate practice, Deng Xiaoping, Edmond Halley, epigenetics, Fellow of the Royal Society, financial independence, framing effect, germ theory of disease, Haber-Bosch Process, hindsight bias, income inequality, information asymmetry, invention of movable type, invention of the printing press, invisible hand, Isaac Newton, Jacquard loom, Jacques de Vaucanson, James Watt: steam engine, Johannes Kepler, John Harrison: Longitude, Joseph Schumpeter, knowledge economy, labor-force participation, land tenure, law of one price, Menlo Park, moveable type in China, new economy, phenotype, price stability, principal–agent problem, rent-seeking, Republic of Letters, Ronald Reagan, South Sea Bubble, statistical model, survivorship bias, the market place, The Structural Transformation of the Public Sphere, The Wealth of Nations by Adam Smith, transaction costs, ultimatum game, World Values Survey, Wunderkammern

This work has successfully addressed a whole set of issues of supreme importance to economists such as household behavior and female labor force participation, corruption, and migration (Fernández, 2011). It also draws heavily on experimental data, which suggest that culture modifies behavior in many ways that qualify and nuance the standard economic assumptions of individual utility maximization in such obvious set-ups as simple ultimatum games (Bowles, 2004, pp. 110–19). A recent essay by Rodrik (2014, p. 189) complains that ideas are “strangely absent” from modern models of political econom—but the same might be said about models of economic growth and innovation, though recent work has made a beginning at coming to grips with the cultural roots of these phenomena (Spolaore and Wacziarg, 2013). Most research by economists on culture as they see it focuses primarily on social attitudes, beliefs, and preferences supporting informal and formal institutions that increase cooperation, reciprocity, trust, and the efficient operation of the economy (Guiso, Sapienza, and Zingales, 2008; Bowles and Gintis, 2011).


pages: 685 words: 203,949

The Organized Mind: Thinking Straight in the Age of Information Overload by Daniel J. Levitin

airport security, Albert Einstein, Amazon Mechanical Turk, Anton Chekhov, Bayesian statistics, big-box store, business process, call centre, Claude Shannon: information theory, cloud computing, cognitive bias, complexity theory, computer vision, conceptual framework, correlation does not imply causation, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, delayed gratification, Donald Trump, en.wikipedia.org, epigenetics, Eratosthenes, Exxon Valdez, framing effect, friendly fire, fundamental attribution error, Golden Gate Park, Google Glasses, haute cuisine, impulse control, index card, indoor plumbing, information retrieval, invention of writing, iterative process, jimmy wales, job satisfaction, Kickstarter, life extension, longitudinal study, meta analysis, meta-analysis, more computing power than Apollo, Network effects, new economy, Nicholas Carr, optical character recognition, Pareto efficiency, pattern recognition, phenotype, placebo effect, pre–internet, profit motive, randomized controlled trial, Rubik’s Cube, shared worldview, Skype, Snapchat, social intelligence, statistical model, Steve Jobs, supply-chain management, the scientific method, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Bayes, Turing test, ultimatum game, zero-sum game

A fire isn’t put out by the fire chief This section borrows liberally from Simon, H. A. (1957). Administrative behavior: A study of decision-making processes in administrative organization (2nd ed.). New York, NY: Macmillan, p. 2. including the insula and amygdala Sanfey, A. G., Rilling, J. K., Aronson, J. A., Nystrom, L. E., & Cohen, J. D. (2003). The neural basis of economic decision-making in the ultimatum game. Science, 300(5626), 1755–1758. responsible for the fight-or-flight response Basten, U., Biele, G., Heekeren, H. R., & Fiebach, C. J. (2010). How the brain integrates costs and benefits during decision-making. Proceedings of the National Academy of Sciences, 107(50), 21767–21772. we bring to decision-making is partly illusory de Waal, F. B. M. (2008). How selfish an animal? The case of primate cooperation.