Homo Sapiens evolved to be fair? Part 2

We know that people tend to reject deals which they see as grossly unfair. This is most apparent in the classic economic experiment of the ultimatum game.

In this game, two players are given a pot of money to share. One player is randomly chosen. She can propose any a split for herself and for the other player. The second player can then reject the deal outright, in which case both players get nothing, or can accept the deal, in which case both players get what the first player proposed. Critically, there is no second deal. There is no Shadow of the Future notion of reciprocity of retribution. This game has been played thousands of times, across cultures. The consistent finding is that deals where the second player gets less than 20% of the pot are consistently rejected...although the second player is worse off in rejecting the deal outright.

The common interpretation of this game is that this dents the neo-classical notion of homo economicus. This is just wrong. The Economist article makes this error, quite surprising because the Economist is usually sympathetic to neo-classical notions. Neo-classical utility maximization theory easily accommodates this behaviour. The theory is framed in terms of maximizing utility rather than income for a very good reason. All you need to believe is that utility is a function of relative income as well as absolute income. The second player in the ultimatum game is maximizing utility, not income. He is happier saying no to a deal which feels wrong.

Under this interpretation the great neo-classical results, like Ronald Coase's insight into free agents negotiating their way to a Pareto-optimal outcomes, are totally valid. The ultimatum game does not create a case for governmental/ authoritarian meddling in people lives or in the economy generally.

What the ultimatum game does offer a really useful insight into is not economics, but politics. Why does income distribution so dominate political discourse? Why is unequal income distribution even though of as "unfair"? It seems to be a pattern of thought that is hard-wired into us as a species.

This is not a normative point; more equal outcomes in a society is not better or worse in a moral sense. My own take is that equality is simply irrelevant from a moral or normative viewpoint. This is just a positivist point. Privilege is naturally resented in every social group: cricket team, company or nation state. More so if it is seen as unearned, inaccessible or both. Finding ways to address or harness that resentment in a creative way is a necessary part of any polity. This is a managerial task...not a moral task.

There are some interesting puzzles that this view might help answer.

For instance, why to the janitors employed by Goldman Sachs earn more than the janitors employed by the municipal government? Both sets of janitors are equally skilled and productive. This is a commonly observed phenomenon. Most companies that pay well do so across job families or skill levels. Are companies trying to address that political problem thrown into sharp relief by the ultimatum game? I can just hear the Goldman janitor cribbing to his mates at the pub "I work for Goldman. The guy with a funny nose also works for Goldman. Why does he make 100 times what I make? How is that fair?". The guy with the funny nose might have a Ph.D. or an ivy league degree...but that sense of grievance is going to be out there anyway.

This may be the reason outsourcing often reduces costs even when working within the same labour pool. Changing the badge on the janitor's uniform breaks that limbic sense of connection between the janitor and the Ph.D. guy with the funny nose. Breaking that limbic connection makes the inequality easier to swallow.

A much more speculative and flaky line of argument...but what the hell...I've been drinking some Chardonnay from Burgundy...

This view might also talk to why third world countries find it hard to trade with the first world. As an Indian, I find it weirdly easy to understand the emotional heft of this argument.

India has done spectacularly well since opening up to the world economy in 1991. Yet, despite this success, political commitment to trade or free-market principles is really thin. Why? Because an Indian negotiating with an American is still talking to someone about 25 times richer than him. He is likely to come away from that negotiation feeling screwed, regardless of the objective outcome of the negotiation. I grew up in Indira Gandhi's India when we were trying to promote South-South co-operation. Meaning...we liked dealing with other poor countries more than we liked dealing with rich countries. This is self-destructive. India still badly needs the income that trade brings and the gains from trade are greater between dissimilar countries or agents. But at some visceral level, this all makes sense.

Homo Sapiens evolved to be fair?

Another fraught moral question. Does distribution matter? Is it really OK if the winners win really big if the losers are also a little bit better off.

Both evolotionart biology and behavioural experiments suggest that this does matter. People consistently refuse deals which feels unfair, even if they are obviously better off taking the unfair deal. This is a very well established result in behavioural economics. It's called the ultimatum game.

The surprising new learning is that chimps will accept unfair deals. This notion of fairness seems to be unique to our species. We probably evolved with this sense. It probably plays a key role in our success as a species, in making possible more complex social organization.

http://www.economist.com/science/displaystory.cfm?story_id=9898270

When is gossip good? When is gossip bad?

Lovely piece from the NYT on a moral dilemma I face all the time.

Is gossip good? Gossip it makes cooperation easier. Gossip makes the gossipers feel emotionally closer. And gossip gives people a game-theoretic reason to be nice to each other. People who are not very nice tend to be the wrong end of negative gossip.

Or is gossip bad? People find it easier to believe the gossip rather than the hard facts, even when hard facts are easily accessible. People get hurt for no fault of their's because of gossip. That feels terribly unfair.

There seems to be truth on both sides of the argument. One thing both sides agree on is that gossip is something evolution hard-wired us to do. We're human. We can't live with gossip, can't live without gossip.

This article reports on some really elegant behavioural experimentation about gossip.

http://www.nytimes.com/2007/10/16/science/16tier.html?ex=1350878400&en=51649aec31cb2ecc&ei=5124&partner=permalink&exprod=permalink

True terror lies in the futility of human existence

Conceptual Terrorists Encase Sears Tower In Jell-O

Sick Leave

Very topical post. Wasn't feeling good this morning. Have taken the afternoon off: 4 hours of sick leave.

Brings to mind some interesting stats. At the company I work for, call center staff are sick about 5% of the time. The same metric never crosses 1% among professional staff. I'm pretty sure our call-center staff are as healthy as the professionals, their average age is about 22. So why the gap?

The first effect is measurement. Call center staff are tightly monitored. Lawyers, project managers and financial analysts are not. So lawyers going home at lunch time may not show up in the sick leave stats only because nobody is watching.

Fortunately, some professionals in the IT department log their time very precisely. Sick leave in the IT department breaks the 1% mark, but only just. So there still is a big gap to explain.

The best explanation I've come across for the remaining gap is work piling up. If I'm not at work, nobody else can quickly step in and do my job for me. So my work just piles up. I'll have to work extra hard tomorrow because I'm at home this afternoon. In the call center, I would handle exactly the same number of calls tomorrow, regardless.

I like the Shadow of the Future part of this argument. A lot of good behaviour is created by the Shadow of the Future. Just like a lot of good outcomes are created by the Invisible Hand.

The mental game: squash

Played a competitive game of squash last week. After a pretty long break.

Was playing a 14 year old. I'd played him before about a year and a half ago, when I'd just got back into the game. He was about a foot shorter then. We were playing in league 5A. He's fought his way up to league 3A since.

I won the first game easily. The 14 year old was just not concentrating. I started thinking about how I would write a post on my blog about how mental strength is a huge advantage for older, more experienced players. I promptly found myself down 0-6 in the second game. Delicious irony. I was feeling positive enough to smile to myself even as I tried to focus.

Three techniques I try while on court. I focus energy on my center between points. That helps me feel balanced and breathe deeper. I visualize fire to get the energy and competitive spirit going. When the point starts concentrate on just watching the ball, trusting my body and instincts to know where to move to and where to place the ball. Over-thinking each point is potentially fatal. Too much imagination can be an obstacle on-court. Visualization keeps the imagination out of the way.

Focusing the mind worked. I won a close game 3-1.

Let's see which league this kid in playing in next year.

Namesake

Watched Namesake this week. Loved it. Strongly recommend.

Somehow it doesn't feel quite right to review this film. It doesn't feel like some pretty little lemon souffle that has been put out in front of me for my delectation. It feels too visceral, too personal, too close to my own life, to my own family for an analytical review.

Some little things I loved (don't read this list if you plan to watch the film):

- Ashima reciting Wordsworth. The care with which she pronounced o'er instead of over

- Ashok explaining the difference between a dak naam and a bhalo naam

- The sacred fire at the hotel. If the American hotel didn't allow fire on the premises, were they really married?

- From the credits. Jhumpa Mashi played by Jhumpa Lahiri

- From the credits. Gogol played by Kal Penn. Nikhil played by Kalpen Modi