Monday, January 10, 2011

Dictator Game

The National Bureau of Economic Research (NBER)recently releasedWorking Paper 16645: "CONVENIENTLY UPSET: AVOIDING ALTRUISM BY DISTORTING BELIEFS ABOUT OTHERS" by, Rafael Di Tella and Ricardo PĂ©rez-Truglia.

There are a vast number of economic "games" :

Some games require that the, generally two, players share or they get nothing. An opposite of that is called the "dictator game." In the dictator game, one player decides if the other gets anything. The second player must accept the decision. The game tries to determine why the "dictator" gives anything.

A variation of the dictator game allows for a side deal on the part of the passive player. In this case the dictator comes up with a reason why the other player got so little. This sounds like farm milk pricing.

The paper begins with an old French quote, "He who wants to kill his dog, accuses it of rabies." The first sentence states, "Beliefs are central in many economic models."

The abstract for the paper states:

In this paper we present the results from a “corruption game” (a dictator game modified so that the second player can accept a side payment that reduces the overall size of the pie). Dictators (silently)treated to have the possibility of taking a larger proportion of the recipient’s tokens, take more of them. They were also more likely to report believing that the recipient would accept a low price in exchange for a side payment; and selected larger numbers as their best guess of the likely proportion of recipients acting “unfairly”. The results favor the hypothesis that people avoid altruistic actions by distorting beliefs about others.

Certainly, the CME dictates milk price to farmers but, it seems to me that the very idea of risk management allows some "top dogs" to think farmers, really good, smart, dairy farmers can get by on thin air.

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