Beware Of Proud Greeks And Ultimatums

Tyler Durden's picture

The ballot box and economics textbook are on a collision course around the world, and we thought Nic Colas' (of ConvergEx) analysis of what behavioral economists call The Ultimatum Game was worth a refresher.  That’s where two strangers divide a fixed sum of money, with one person proposing a split and the other accepting or rejecting it.  It’s a one-shot deal, so the proposer tries to work out the minimum amount required to get the other person to go along.  Classical economics says that a $1 proposal out of a $100 pot should work, but in real life (and this study has been done everywhere from the rainforests of South America to the bars of Pittsburgh) it takes 25-50% offers to win the day.  Nic found three recent updates to the Ultimatum Game that each speak directly to the current political state of play in Europe and the United States.  One shows that proud people (or those led by nationalist-minded politicians, perhaps) need higher offers in order to accept a split. The second shows that the Game works even for small amounts.  The last – and the first such study we’ve ever seen from a mainland Chinese university – shows that worries over social status complicate the already difficult mental calculus of "How much is enough?"

All the proposed solutions to the European and American debt crises seem to meet at the crossroads of what is "Fair."  A tough word, that, since it means different things to different people.  A trip to several online etymology resources – the Oxford English Dictionary website sits behind a paywall that would make Hadrian proud – delivered this composite description of the word’s historical usage:

  • From the Old English – “Beautiful, lovely, pleasant.”
  • From archaic Scandinavian languages – “Beautiful” or “fit”
  • From the Middle Ages – “Light complexioned” or “free from bias”.  The latter is from another strain of the word, meaning “Moral, or pure, or free from blemish.”
  • From the 1850s – the words starts to become incorporated into sports commentary, meaning “Proper.”

In other words, “Fair” in medieval times is the linguistic equivalent of today’s “smoking hot, but not too trampy.”  How that meaning migrated to its current definition of “Equitable,” “legitimate” or “honest” must be a long journey.  Too bad – it seems more civilized and sweeter to say that David Beckham or Kate Upton or (fill in your favorite celebrity name here) is “Fair.”

And just as the word has evolved over the years, so has the view of economists on its role in human decision-making.  Classical economics had little use for the concept during its heyday in the middle part of the last century.  Hand a logical thinking human a $1, and that will always make them feel better off.  Why would it be otherwise?  The notion that the marginal dollar is always welcome at the city gates of consumer psychology is pervasive in modern economic theory.  It even makes an appearance in that credit card advert with Jimmy Fallon and the baby that is on every 15 seconds across America: “Who doesn’t want more money?”

In the early 1980s, behavioral psychologists studying how humans bargain came upon an elegant experiment that proved classical economics had the marginal dollar construct very, very wrong (Kuth, Schmittberger, and Schwarze, 1982).  They asked pairs of people, strangers to each other, to split a pot of money.  The only catch was that it was a one-shot deal.  One person proposes a split, the other person accepts or rejects it.  Accept, and both parties keep the money as agreed.  Reject, and no one gets anything.  The marginal dollar construct of classical economics would have you believe that the person in charge of offering the split could put out $1 out of $100 and get the other person to agree.  Laughably wrong, of course.

The Ultimatum Game, as researchers now call this experiment, is the single most replicated and refined study in what is now called behavioral finance.  It has been done with illiterate Amazonian tribespeople, drunk students on pub crawls in Pittsburgh, and both men and women jacked up on testosterone.  The results are always the same: the person proposing the split needs to offer up at least 20%, and usually closer to 50%, to have a change of seeing their offer accepted.  It seems a genuine constant of human nature that people need to feel that they are being treated “Fairly.”  Moreover, the price of this requirement is explicit, as they are willing to give up real money just to make sure the other person doesn’t get more than they deserve.

I recently came across three updates to The Ultimatum Game that further expand on this central theory of perceived “Fairness”:

  1. The money isn’t actually the issue.  Amazon has an online portal called that is a effectively a marketplace for short projects and the people that want to work on them.  Israeli researchers leveraged this platform to run a modified Ultimatum Game using only small amounts of money.  Instead of $20 or $100, which are the more common monetary pools used for similar studies, they ran the game with over 700 subjects using either no money at all or just $1.  The idea here was to test if the subjects would grow more “Rational” when only de minimus amounts were on the table.  The answer: an unequivocal “No.” Even when small amounts were at stake, the “Fairness” issue still ruled the day in the same proportions as when “Real” money is on the line.  See here:
  2. Self-worth explains part of the puzzle.  Do you know someone who always dates the “Wrong” people or lets others walk all over them?  Don’t let them be a subject in The Ultimatum Game, because they are about the only ones for whom the $1 out of $100 looks like an acceptable split.  As it turns out, self-worth is a strong determining factor in how much someone accepts in the game.  See here:
  3. And notions of social status explain some more.  In the first Ultimatum Game study I have seen written up from mainland Chinese researchers, the form of the game is altered to give the person judging the offer a sense of what offers their peers in the study received.  If you tell a subject that their peers are seeing 35% offers, they are much less likely to accept a 30% proposed split.  See here:

One way to look at the current tensions in both European and American debt discussions is as an Ultimatum Game between governments and individuals.  Take Greece, for example.  Classical economics would say – and you will hear a lot of policymakers echo – that the Greeks should take whatever deal they can.  Something is better than nothing.  All the lessons of the Ultimatum Game studies point to an entirely different conclusion.  The Greek feel that they have been treated unjustly. After all, the wealth created by the fraudulent government accounting really accrued to only a handful of people.  So whatever deal might be on the table is not “Fair” (that word again…).  And even if it means being materially worse off, Greeks may well choose that route.

And the new studies I highlight in this note seem to push that conclusion even more strongly.  The Greek people are nothing if not proud.  And they are also sensitive to the notion that the turmoil of the last three years has diminished their social standing in the European community.  Put those two factors together, and the upcoming vote on June 17th feels even more unsettled than one would think.  At the end of the day, the stresses of the ongoing financial crisis are not just about the money.   And since humans react the same everywhere around the globe when it comes to the Ultimatum Game, the lessons of that study are just as relevant in Athens, Georgia as Athens, Greece.   The upcoming U.S. presidential election will certainly prove that.  

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UP Forester's picture

Hungry, pissed-off, cornered people tend to not act the way you want them to.

Ahmeexnal's picture

MSM is mute about an ongoing disaster:

Nuclear blast onboard the USS Miami (Los Angeles class nuclear powered submarine) docked at Portsmouth.

Paging black swan....Paging black swan...

Nuke Blast on US Sub Still Burning

By Joey Cresta
May 23, 2012 11:04 PM

KITTERY, Maine — A fire that went to at least four alarms was still burning aboard the USS Miami nuclear-powered submarine Wednesday night at the Portsmouth Naval Shipyard, six hours after it began, according to the yard's commander.While the fire - located mainly in living areas and in control spaces - continues to burn, the situation is improving, said Base Commander Capt. Bryant Fuller in a
statement to the media at about 11:30 p.m. Wednesday. Six people were injured fighting the fire and were either treated at the scene or transported to a hospital, said Fuller. One of the injured was a
firefighter who suffered heat exhaustion but who was conscious and alert, he said.


Dr. Sandi's picture

Nuke Blast? I don't think heat exhaustion from a smoldering mattress is quite my personal definition of a "Nuke Blast."

I'm more into a bright flash and everything within miles being vaporized.

I'd almost think somebody is trying to manipulate my emotions by invoking the "Nuke Blast" scenario.

Ahmeexnal's picture

SHTF.....Not "IF", but "WHEN":

Fukushima: If Number 4 Collapses, Japan Will Be Evacuated

Chris Canine – who has 15 years experience as a health physics technician, chemist and radiation safety instructor – told Energy News that if number 4 reactor fuel pool at Fukushima collapses, Japan will be evacuated



Harlequin001's picture

I agree, I think they should just let TEPCO abandon the site. That would get the stock market going again and like Bernanke said, a rising stock market will do more for the recovery than anything else.

Let's face it, what's a few hydrogen explosions between friends? We're cool, and anyway, radiations' good for you, so the Japanese will probably be healthy for the next few million years, and if they do evacuate Japan, we're all going to have to suffer all these two hundred year old super healthy people living amongst us bowing and fucking smiling at us all day.

Nah, leave then where they are...

HungrySeagull's picture

They had over a fucking year to evacuate.

And my plan of nuking the place into rubble until covered by the ocean would have been a brief show of radiation etc instead of this... evolving horrorshow.

Even if you DID evac Japan, where you gonna stick em? In one of the many Chinese make work cities?!

stacking12321's picture

History shows again and again how nature points up the folly of man

Oh, no, they say he's got to go
Go go Godzilla
Oh, no, there goes Tokyo
Go go Godzilla

Oh regional Indian's picture

Clearly all these transactiones need the now famous "Fairness Cream", long a best-seller in cosmetic circles in India.

To be fair...... became... Oh, to be Fair.

In all fairness though, when the basis of this clusterflock goes back more than a millenium, it's really without point to scratch the surface and say "Ah, I see it, it's a dirty tranche and an un-fair clause".

A Santa Clause. Every contract should have a Santa Clause. The "By Jimney, it's the Chimney" Clause. 

BeClause, all this languaging (and it's origins) of Causes and Clauses has far deeper ram-i-fications than most can even begin to IMAGINE.

One word, one definition, Black's Law Dictionary.

human Being: A Sea Monster, a Monster Birthed from the Sea.

Check it out. Then put this verbiage of Lex-ness in perspective.



Edit: Oooh, don't like being called sea-monsters, anyone. ;-) and that is just the tip of th eice-berg. If you don't know the root of language, you don't know SHIT. You especially do not know any LAW. Zilch. Deal with it.

wretch's picture

"Nuke Blast"?  Why repeat that shit?

Aristarchus of Samos's picture

Excuse me Sir, but if it injured six people, then it cannot be characterized as a 'Nuclear blast' (sic).  If you don't know why, then perhaps you shouldn't comment?

HungrySeagull's picture

The US Navy trains world class damage control. It is life and death, no matter how, where or hot the thing gets.

Fire is the number one danger of the sea.

I hate to say it, it could be as simple as a smoke left lit during bed time or a wiring fault.

Harlequin001's picture

What happened to the picture?

aaand now its back. I give up...

Mentaliusanything's picture

Brilliant Banzai _ you have covered all existing lines. 

But me thinks the Greeks maybe building the new main line "getiuosthefigoutofhellandlivus"

love your stuff

boogerbently's picture

It reminds me of Khaddafi's "Line of Death." LOL

What ever happened to him.....and his country?

Why is Greece, with it's PITTANCE of a sovereign debt, being made into such a boogeyman/monster?

I haven't figured out "their" (TPTB) angle, yet.

BigJim's picture

It's called base and tier 1 capital... look it up; it's in The Banker's Big Book of Uh-oh.

q99x2's picture

'bars of Pittsburgh' Now why'd ya have to go there?

Ahmeexnal's picture

Unabomber Ted Kaczynski lists self as ‘prisoner’ in Harvard alumni directory


The Harvard alumni directory for the class of 1962, which is celebrating its 50th anniversary, contains a bizarre entry for Ted Kaczynski, the graduate who went on to send deadly bombs through the mail as the mysterious Unabomber. While many of his classmates sent in lengthy updates on their lives for the 2 ½-inch-thick “red book,” the entry for Kaczynski only contains nine lines. Under the awards section, the listing says, “Eight life sentences, issued by the United States District Court for the Eastern District of California, 1998.”

Harlequin001's picture

Well, at least he hasn't lost his sense of humour...

bdc63's picture

Future Plans:  Burning in hell

Spitzer's picture

Hey you know what...

The ECB could have just printed up Euros to buy greek debt and there would be no problems at all. It works in California.

Bizaro World's picture

"It's time for them to pay their fair share"......where have I heard that before?

Milestones's picture

A most interesting post !! I would tend to agree with the author; that the issue of pride and insults play a far more important role than many realize.                               Milestones

q99x2's picture

Ron Paul for president.

Dr. Sandi's picture

Ru Paul for president. He can be Commander in Chief and First Lady at the same time, saving us big bux.

Oh regional Indian's picture

Worse, if RP does, by some great twist of fate, get elected, people might end up with???


Rue Paul!


HarryM's picture

After yesterday's stunning comeback it became clear to me that when shorting really becomes profitable, shorting will be suspended.

When it becomes clear that the markets will really collapse, prior to the collapse, trading across all global indexes will be suspended.

The Ultra-Rich and powerful will then use their powerful political connections to work out backroom deals to ensure that they remain rich and powerful and in control, and that the poor remain poor.

Once the deals are decided, debt cancelled and the like, the markets re-open - and we start from the beginning




financial apocalyptic contagion's picture

or the poor people are like fuck that

AnAnonymous's picture

The Ultra-Rich and powerful will then use their powerful political connections to work out backroom deals to ensure that they remain rich and powerful and in control, and that the poor remain poor.


US citizenism has indeed proven to the ultimate threat to the rich and powerful.

Cant think of worse.

They are scared. Very, very scared.

Crisismode's picture

What is "US Citizenism"?


Is that some kind of medical condition?

boogerbently's picture

I have, roughly, the same philosophy.

THEY need US to buy their shit!

AnAnonymous's picture

US citizen elite might have needed US citizen middle class to enable the huge concentration of wealth and make a cleansweep against other elite around the world.

Now claiming that they need US citizen middle class to consume the remaining resources, that is quite a claim.

Like claiming the noble needed the poachers to consume the game of the noble's woods.

HD's picture

While I agree with the premise of the article - let's face it, Greece isn't benefiting much under their current "bailout". A Goldman technocrat was installed to give bankers everything they wanted while throwing a few pennies at the Greek people who were told to be happy fighting for scraps.

You can be broke or be broke AND in impossible debt. Which do you think the Greek people will choose...

CompassionateFascist's picture

The Greek Sheeple will vote (again) for the same Center-Left debtgang that made the current mess. Ditto in America, if the System survives until November...but it won't. I take note of the fact that Morgen Stanley Smith Barney is pulling all of its PM accounts away from Citigroup by the July 4th weekend. CG will be the first of the TBTFs to collapse, & look for AllHell to break out shortly thereafter. Invest in lead.

Yen Cross's picture

 Tyler Get's it! Fantastic post! I especially enjoy the 1-100$ scenario/ on a 25% RoI .


  Cash on The Barrel Head, Takes on a whole new meaning!

ebworthen's picture

Leave the Euro and re-institute the Drachma for a 50% loss yet have control over your currency and not have the Germans or the rest of Europe kick you around with "austerity"?

Yeah, they'll take that 50%, they're just getting what they can while the money from ECB is "free".

Azannoth's picture

The problem is that nobody in today's world thinks 50%(fifty/fifty) is anywhere near "Fair", everybody wants to get > 80%+ and settle for no less than 70%+

boogerbently's picture

I think, the problem is, many people think 50-50 is a "fair" deal when they're getting 50% of YOUR stuff!

carbonmutant's picture

If countries are no longer TBTF what excuse do banks have?

zhandax's picture

Outstanding point!  I am willing to tolerate a year of gut-wrenching deflation (1921-style-read about it; it was so quick everyone has forgotten) to see these maggots purged from the system.

icanhasbailout's picture

What's the "no deal" option in the upcoming election, where the banking cartel is offering the people a nickel in the split?

The Reich's picture

I'll demand the full amount plus interest frum zee Greeeeks.  Sounds fair to me.

Jack Sheet's picture

"fair enough" in German: blond genug

Milton Waddams's picture

In other worlds:

This is the type of info rank and file Congress Muppets are presented with:

Further, stop putting your kids into early classes to learn 'Chinese':



Cult_of_Reason's picture

To the people of Paris (Greece), the Bastille (Germany) was (is) a symbol of brutality and totalitarian power.

The prison only held seven prisoners. But the storming of the Bastille had done far more than release these seven men. It had brought an ancient system of royal (EU) tyranny to an end. Upon learning that the Bastille had been taken (Greece voted against eurocrats), King Louis XVI (Merkel) asked an aid (Schaeuble), "Is this a revolt?" The answer came swiftly: "No, Sir (Frau). It is a revolution."

Two days after the storming of the Bastille, the National Assembly ordered that this symbol of despotic power be burned to the ground. The crowds cheered as the prison walls crumbled and finally grass grew where the Bastille once stood.

Ghordius's picture

nicely done, this comparison

any semblance to reality?

there is a widespread media campaign targeting the "reason" in getting back the drachma and still the Greeks answers polls about keeping the EUR with a resounding yes, first 60% two years ago, then 70% last year and just shortly 80%...

meanwhile SYRIZA leaders are currently in Germany explaining that they don't want to exit the EUR, they just want better conditions. in my book it's called bargaining

of course, this is not what the City of London led media wants to hear or propagate, they prefer to expand on manuals of "how to exit a currency union", which includes endless articles about how fast and secretly this can be done and constantly omitting that some key parts would involve new laws from parliament - how secretly can this be done?

the best rumour was about this British firm printing Drachmas - if the Greeks really were printing a new currency - for which they haven't the political will - they would go to one of the three firms that specialize in this market and quietly print the banknotes for dozens of other countries instead of a gossipy UK one.

get some reality, the "prison" is in your head