Humans are irrational…or not (wonkish)

I think the most important result in economics is that, when playing the ultimatum game in experiments, transactions are rarely made. (A first player proposes how to divide a sum of money between him and another player who can either accept or reject this proposal. If the second player rejects, neither player receives anything. If the second player accepts, the money is split according to the proposal. The game is played only once)

Economic theory would predict that, humans being rational, any proposed splitting up should be accepted as anyone is better off with 1$ than nothing. But second players, knowing that they are being ripped off by an unfair division of money, always reject it, even though this implies less money in their pocket (0$ instead of 1$).

So what does this tell us about economics? Well, an IUED person would tell you that this means economics is all crap and all the models may now be thrashed or…as an economist could tell you, refusing a deal here may be explained by bio-evolutionary game theory. Humans know that they cannot accept shitty deals if they want to survive in this world. This would send a vulnerability signal and increase chances of further abuse, hence diminishing your inter-temporal cash inflow.

But the game is played only once in the experiment so this cannot be the explanation…Well, this may be an instinctive reaction (subconscious rationality) that has nothing to do with the experimental setting.

But I guess this reveals something way more important. An unequal distribution of wealth makes those at the bottom pissed off.