Interesting behavioral finance question

[TXlib]

This was a real experiment done once.

Imagine you are a participant in an experiment. You are in one room, and somebody you don't know, and will not meet, is in another room. The rules of this game are explained to both of you as follows:

There is a pot of $100. One of you (A) gets to decide how to split it. The researcher goes to the other person (B) and tells him what the offered split is. B can accept or reject the split. If B accepts, you both get the money, per the arranged split. If B rejects the split, you both go away empty-handed.

Two questions:
If you were A, how much would you offer?

If you were B, what is the minimum you would accept?

Follow up question:
How would your answer differ if the pot up for grabs were $1,000, or $1,000,000?

[GOPisEvil]

1. If I'm A - I offer a 50-50 split.

If I'm B - I would take any offer A made assuming it was more than 0%. Some money is better than NO money. If A offered me less than 50%, I'd think he was an ass, but I'd take the deal. Money is money.

[Gman]

4. Anything more than $0 can be applied to B's

opportunity cost of being there.

[thom1102]

11. This is how I would respond...

If you want to talk about ramifications, this to me is how everyone wins. Both parties walk away with even money, neither side harbors resentments. In real world scenarios (trade negotioations etc) you know who the other party is and have to have somekind of working relationship once the deal is struck, so striking the fairest deal is the best way to win in the deal.

Just MHO.

[TXlib]

2. kickety

[ret5hd]

3. this is called game theory, IFRC...

and has applications far more reaching that what one would initially think. Our gov't has studied it extensively.

the same theory applies to trade negotiations, hostage negotiations, political negotiations, etc.

One who understands this theory and its application would not be so quick to offer 50-50 (assuming you are out to 'win' instead of being 'fair')

for instance, what if you knew that B was hungry and broke. Knowing that if he refuses he gets nothing, B is apt to accept anything that will get him a satisfactory meal. Less than that, and you will probably just piss him off.

anyway, just my $.02. google game theory.

[TXlib]

5. A very simple example of it.

Basically, this experiment illustrates the politics of greed & envy. I think that was even the title of the paper they published.

They found that, on average, B rejected anything less than 35%, regardless of scale.

Me, I think somebody who would turn down $100,000 out of a million is so blinded by selfishness, greed, and revenge-lust that they can't see that they're turning down 100,000 frickin' dollars!!!

[TXlib]

6. Follow up experiment:

Similar to the first one.

The researcher offers you $5. If you take it, he's going to give the other person $1000. The other person had no say in this split.

[WillParkinson]

7. I like mine better...

You say you'll split it 50-50.

The researcher goes in and says that you offered to give B $10.

B says NO WAY!

Researcher comes back and says that you both lose the money.

A & B leave.

Researcher pockets the cash and waits for the next subjects to come in.

[ProfessorGAC]

8. Will. Do You Work In The Bush Administration?

Your example sounded like something they'd do. Now i don't know if you can be trusted, with your enronesque business sense. (Kidding, of course.)
The Professor

[WillParkinson]

9. Damn...

I'm discovered....

[TXlib]

10. Sounds like "Business Ethics for Republicans 101"

[northzax]

12. It's the Spanish Prisoner

or the Prisoner's Dilemma, a regular feature of International Relations theory.

The way the PD version works is like so:

You are arrested for a crime, with an accomplice. You are both isolated in jail. The prosecutor comes to you and says "OK, we have enough evidence to convict you both, but I'm going to offer you a deal. If you confess, and plead guilty, you will get ten years in jail, and your accomplice will get life. If you don't confess, and he does, he will get ten years, and you will get life. If neither one of you confesses, you both go free. If you both confess, you both go to jail for life.

What do you do?