RE: [OPE] Behavioural economics: a revolution in science?

From: Michael Williams <>
Date: Sat Sep 27 2008 - 15:50:22 EDT

Although the press keep ‘discovering’ it, behavioural economics has been
around for at least 20 years, with precursor’s like ‘bounded rationality’
models going back to the 1940s. It provides many useful ways of concretising
the abstractions of rational choice economics (which makes it complementary
to that orthodoxy rather than a rival to it).


The ultimatum game has no special connection to behavioural economics but is
part of the game theory of negotiations and bargaining. Although the
experimental evidence that ‘proposers’ typically offer between 50 and 30% is
often interpreted as indicating a widespread concern for ‘fairness’ by
economic agents, as the Prospect article points out, it can better be
interpreted as driven by an estimate of the risk of rejection – a perfectly
‘rational’ process. Nor need the responder’s apparent rejection of ‘free
money’ imply irrationality rather than the plausible existence of
non-pecuniary perceived costs and benefits of being taken for a sucker –
including the future costs of getting the reputation of being a wimp with
those players with whom the game is likely to be repeated indefinitely.



Dr Michael Williams, BA, MSc, PhD


Mob +447906172655

Home tel +4423 80768641

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From: []
On Behalf Of Jurriaan Bendien
Sent: 27 September 2008 18:15
Subject: [OPE] Behavioural economics: a revolution in science?


... a revolution is under way in economic thought. Behavioural economics is
no bell or whistle on the contraption of traditional economics; it is a big
departure which will deliver a revolutionary new way of understanding the
world. The founding assumptions of orthodox, neoclassical economics—that
people can be thought of as rational, selfish and independent—are collapsing
under the weight of empirical refutations. Here is one example: the
“ultimatum game,” which typifies the story of behavioural economics with a
curious yet simple experiment. As you know, in this two-player game, the
“proposer” is given a sum (say £10) on condition that he or she offers a
proportion to the “responder.” If the responder accepts the offer, each
player gets the amounts agreed. If he or she rejects it, both get nothing.
Orthodox economics says players are selfish, and so predicts that the
proposer will offer just a penny and the responder, preferring a penny to
nothing, will accept. But this is not what happens. The most common offer is
half the total sum, and offers of less than 30 per cent are almost always
rejected. If the proposer’s offer is seen as unfair, the responder will
decline free money.


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