The Ultimatum Game on Wall Street
I met my wife almost ten years ago, back when she was completing her doctoral degree in psychology. We were both living in Florida. I was working on boats, she was going to classes, we were both ardent students of human behavior. Most of my learning came from books and observation. She had the same tools at her disposal, but more: formal classes, practicums, in-patient hospital experience, an undergraduate degree. In short, she knew a whole lot more about human psychology than I did (and the gulf has only yawned wider since).
However, I did have one advantage. While we both were firm believers in biological evolution, I viewed all human behavior through the lens of this remarkable theory. Whenever I needed to determine why someone did or said something, I looked for a root cause, a bigger picture, the evolutionary framework. As a clinical psychologist, my wife was looking more proximally. How could she help this individual? What behavior did she want to reinforce or diminish? How best to accomplish this? To this day, whenever we debate human nature, we find ourselves having two disparate conversations. I want to discuss global perspectives, facets of humankind, while she wants to talk about how these features are evident in the two of us and the interplay of our relationship.
Neither stance is right or wrong. It would be like saying macroeconomics is more important than microeconomics. I am curious about universal truths; she is eager to improve the lives of individuals. If I had to be objective, I’d say hers is the more humane and reasonable stance. It is her profession, and she’s damn good at it.
But ten years ago, the larger framework stuff had not yet been incorporated into her worldview. I remember one conversation we had about her love of dance clubs. It went something like this:
My Wife: “Me and the girls are thinking about going clubbing tonight.”
Me: “Ah, that old mating ritual, eh?”
“What? It has nothing to do with mating, you ass. It’s just fun!”
“What does that even mean? Just fun? Things are enjoyable to get you to do them more often, not because the universe wants you to enjoy shit just to enjoy it. You go out with little on, shake your butt, and it makes men want to breed with you.”
“It’s not like I’m going to go home with anyone.”
“That’s because your frontal lobe will intervene. So long as it isn’t pickled in martinis.”
“No. I don’t think that’s going on. Dancing is just fun. It has nothing to do with mating rituals. I don’t even want kids!”
We probably had a dozen variations of this conversation, only with her calling me an “ass” with greater frequency. Ten years later, and I am betting that she finds herself on the opposite side of the argument as she talks to her college aged clients. It isn’t so much that I was right and she was wrong, it’s that I was on the outside and she was on the inside. It’s difficult for us, who are possibly acting against reason and our best interests, to admit that evolutionary pressures are tugging our strings like a grand puppeteer. It’s just as often these days that my wife points out the true root of my own nonsensical behaviors. And I often have to sheepishly agree with her.
So this is how I look at the world: I am constantly trying to ascertain the function of things and people. I want to know how machines operate, how the cogs move, and I want to know what drives our actions. Lately, it’s been the Occupy Wall Street kids who have fascinated me. There’s something . . . off about their motivations, and I think I finally put my finger on it. So let me tell you about this classic study in game theory known as Ultimatum.
Ultimatum is a simple game. There are two players and a lump sum of money. Player 1 chooses how the money is to be split. Player 2 gets to accept or reject this offer. For instance, Player 1 is presented with $100. They decide to split the money 60/40. Player 2 accepts, and gets to leave with $40 while Player 1 takes $60.
What’s interesting about Ultimatum is that Player 1 tends to split the money pretty near even. Close to 50/50. This game has been played out thousands and thousands of times with as many participants, and in dozens of cultures. The results are pretty damn consistent. If you have Player 1 perform an unfair split, Player 2 will reject the offer, and both walk away with nothing. Player 1 seems to intuit this without ever having played the game before, so tries to give a fair deal. There are variations that entail playing over and over and splitting roles and what-not, but the basic game reveals something about our sense of fairness. But it also displays something more interesting: our willingness to diminish our own wealth if it means punishing another for being unfair to us.
Whenever Player 1 tends to offer less than 20%, the deal is called off. I find this fascinating. It is illogical on the surface. Player 2 is better off with $20 than nothing. But he or she would rather have nothing than know that they’ve been had. It would be unbearable to know that someone walked off with $80 and got away with an injustice. (Also, there’s the desire to set up standards of fairness, to not be a pushover, and other theories of reprisal and social pressure).
This is at the heart of class envy, which is at the heart of class warfare. Now, before I go any further, allow me to divulge some of my political and economic positions. I think the wealthy should pay a lot more in taxes than they do now. I could get pretty extreme with this, suggesting a return to the 80% tax bracket for the wealthiest. And by “wealthiest,” I mean people making over $1,000,000 dollars. The current $250,000 line has been made ridiculous by inflation. I also think the banks should have been allowed to fail. See? Pretty damn extreme. So, when I expose the Occupy kids and explain their root behavior, it isn’t because I ideologically disagree with them. It’s because I am ethically and emotionally superior to them. But I’ll get to that in a moment.
Occupy Wall Street is a huge rejection of a colossal game of Ultimatum. Simple as that. The results of game theory are universal because the tendencies they reveal are hardwired into our DNA (and that of other animals, who often test the same in similar games). What happened is this: Capitalism created a big pot of money. Player 1 is made up of all the people in control of this money (investment bankers, CEOs, board of directors, politicians, union leaders, etc…). Player 1 chose a 90/10 split. A bunch of people are now rejecting this.
This is a pretty neat and powerful explanation for a behavior that even the people involved have a hard time putting into words. You see, they are in a similar situation my wife was in while she tried to rationalize her drive to reproduce by saying that “dancing was fun.” The Occupy Wall St. kids are motivated by anger. Frustration. Hostility. They don’t know where this is coming from, so they have to rationalize it. They make up stories that seem to match their emotions. But their emotions are simple to explain. They feel jilted. Taken advantage of. They know they are receiving something, but not a big enough slice. They want more, damnit, and here is where my respect for their movement wilts in a cloud of pepper spray.
To put it bluntly, these kids are hypocrites. They are angry that someone else is wealthy, not them. They are pissed because the knowledge that other people have lots of money makes it impossible to enjoy the much smaller slice they’re left with. They want more, more, more. Or, failing that, they want to burn the entire thing to the ground. Without a fairer split, Player 2 chooses to reject the deal altogether. It’s much like an ex-lover who justifies killing his former sweetheart because “If I can’t have her, no one will!”
Capitalism works. Even the bastardized form we practice in America, where subsidies, complex tax shelters, unfair trade practices, a managed currency, and other obstacles make our economy a ghost-like approximation of true capitalism, the result is difficult to deny. Exhibit A: Poor people in this country are free to be fat! They can afford to indulge, can work without getting exercise, and can entertain themselves on their butts. The obese couch potato is the ultimate victor in the evolutionary struggle of life. He is a big, fat (ahem) “Fuck You” to nature. The ultimate “I win!” Finally, we have overcome the struggle for resources and have met a new struggle: learning to forego immediate self-gratification.
The result of capitalism is a standard of poverty that outclasses the lifestyles of world leaders a century ago. We have wiped out diseases that could strike down a king or queen. We have instant communication, dumpsters full of food, ridiculous transportation options, and social safety nets unheard of 100 years ago. These are the delicious scraps. This is the 10%. These are the crumbs, which are boulder-sized and have ushered in an era of hedonistic joy and security for even the poor. To deny this is to display ignorance for what the poor endured a century ago. They were recognizable for exposed ribs, in America, rather than clogged arteries.
This 10% has given me the ability to sit here in a warm cave, pecking away at a miracle device, with hundreds of channels of gladitorial entertainment, electricity on demand, devices to wash my dishes and clothes, and a box to hear my mother or father’s voice. I have cold mastered in one machine and hot water flows with the twist of a knob. Henry VIII, if resurrected and shown my 850 square foot abode with its sundry of miracles, would worship me as a god. (He would probably cut my head off and steal it all, but he would be insanely envious of what I possess.)
So here’s where the Occupy Wall St. kids get it wrong. Could the system be more fair? Sure. Tax the wealthy. Let the banks fail. I was for these things before any fringe group stumbled upon the reasonableness of the ideas. But to blame a system that brings wealth is to deny the riches it has brought you, even in smaller slices, simply because envy is clouding the brain. The obsession with those who are taking the 80%, 90%, even 99% is irrational if it requires discarding the thing that is lifting all standards of living. It is an observable fact: no other system of economics results in the increase of wealth across the entire system like capitalism. It is also a fact that this spread is not perfectly even. My attitude? Who the fuck cares?!
Grow up. Be more mature than the asshole bankers and fatcat CEOs. You know what? The only reason they might (might) be happier than you is because they have less dirty envy in their hearts. As soon as you let that go, I promise you, you’ll be better off than any of them. Don’t have a job? Take any one you can find. Two of the best years of my life were spent roofing, an occupation of pure toil and torture. But I was free, in good company, making things with my hands, and going home at night exhausted, satisfied, and not wanting for anything. I have captained yachts for billionaires who weren’t nearly as happy. And the secret had nothing to do with keeping up with them, but with ignoring them.
There are so many improvements to be made with our system, but tearing it down is the worst thing we could do. It would be out of spite and motivated by envy. And ironically, performed by a bunch of kids who probably think they are Buddhists to some degree or another. This will always be a game of Ultimatum. If you find yourself saying “We should fuck ourselves to teach them a lesson, to force them to give us more, more, more,” then you are what you are. If you’re comfortable with that, I can only be sad for you. Me? I know something many don’t. If you move the people around in the experiment, if you let the prisoners become the guards, or the shockees the shockers, the results will play out the same. Shower those kids in that park and put a suit and tie on them, and they would run the banks the exact same way. Neither side is any better than the other. Both are salivating over the same big pie, wanting as much of it as possible while doing the very least they can get away with.
And I’m gorging myself contentedly on the crumbs.