How Game Theory Economics Explain Human Altruism

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EconomyPhoto: Gelman library system

Probably the biggest generally accepted misconception is that humans – as intelligent animals – are selfish. Usually this misconception arises from the fact that the world is (kind of) a survival of the fittest place and in order to stay alive, one must be selfish. Economics uses the concept of ‘homo economicus’ to deal with situations which would, by economic perspective, lead to selfish, yet effective behavior. ‘Homo economicus’ is the concept of an agent which behaves as it does in order to constantly maximize its utility. Utility in this case can be anything from material to social purpose and interest. If humans are highly rational in the choices they make and selfish, or at least, egocentric in their ends then that person can be considered an authentic ‘homo economicus’. Most humans are in some way interested in the notion of ‘homo economicus’, but is this really the reality of our state of affairs? We shall re-evaluate this concept using a few ideas from common folk psychology, sociology, and experiments made with game theories. Are humans evolutionally constructed to be ultimately self-interested, or might there be more complex systems acting behind this rather simplified idea and if so, why do we continue to talk about the idea of ‘homo economicus’?

Homo economicus and game theories

Researchers have traditionally been very interested in this field and have created a huge amount of experimental data researching it, mostly derived from different variations of well known game theories. Game theories are simple game arrangements and by using mathematical tools, researchers have been able to conclude the best possible situation for the player if he wants to get the most from the situation. Through those that exhibit ‘homo economicus’ researchers can reveal what strategies these players use in order to leverage the most utility for themselves. Games which are used are typically so simple that almost anyone could figure out what to do in order to win them.

Game Theory stripPhoto: Jeffreyhill

Ultimatum is a simple game where the first player is given an amount of real money – say $10. Then this player is allowed to give an amount of money to the another player, who can accept or decline it. If declined either one of them will get nothing. If humans are really inherently ‘homo economicus’, the other player should take any amount of money because no matter how much it is, it’s still a profit. However, this is not the case: players usually offer 40-50% of their initial sum and almost every offer which is 20% or less is rejected. In one game for example Anglo-Americans were playing with $100, against Indonesians. Both of them rejected $20 (20%) even though this is two weeks salary for the average working Indonesian.

Dictator is simplified version of Ultimatum. In dictator the second player is passive; it doesn’t matter whether they accept or decline as it has no effect on the first player. If humans are truly ‘homo economicus’, there is no rational reason to offer any amount to an anonymous player. However results are almost identical with Ultimatum, in offers and in declines. From an economic point of view, this is highly irrational. The amounts that were offered also increase if the players are able to see each other.

UltimatumPhoto: Deltman Grosse

Public Goods is game arrangement involving several players. Every player has an initial sum of money and they can put an amount in a mutual ‘stash’ – after this first round the money is taken from the stash and is distributed between all the players equally. Because all the players had the same amount of money, they are aware that not everyone has given any money. If played anonymously, sums which are given to the ‘stash’ start to decline. The interesting aspect is that the mutually distributed amount almost never declines to zero. This means that there is always some ‘hard core givers’ who continue to put their money in the stash, no matter what everyone else does. It is also interesting to note that this happens almost every time, so it is highly unlikely that every time this game is played, this heterogeneous player group exists. It seems that people naturally adopt ‘roles’ in these kinds of situations.

These games clearly show that humans definitely do not reason along the lines of ‘homo economicus’. Humans can function with uncertain information even though they usually do everything they can to decrease this uncertainty. ‘Homo economicus’ instead loses its efficacy if there is uncertainty. However, humans have many tactics which they will unconsciously use in order to make the best of a situation. Humans may not be ‘homo economicus’, but they will surely try to be one. The easiest way to deal with uncertainty is to use heuristics. Heuristics are rules of thumb that are broad enough to be used in many different situations. I therefore introduce the theory that egoism is a social heuristic.

Egoism as social Self fulfilling prophecy

If a person considers him or herself as non-selfish, this person might encounter problems as severe as exploitation if other people see that he or she is not a selfish person. If someone believes that every other agent in a particular environment is selfish, then the best possible heuristic is to act like one in order to prevent possible exploitation. This also makes other people respond in the same manner, which leads to what we might call a self-fulfilling prophecy. If this is the case, egoism is then a social heuristic rather than a genetically encoded property. Egoistic behavior also reduces if the parties are more familiar with each other. They share more trust and they can use altruism in order to prevail as a group rather than as individuals. This factor might also explain how altruistic behavior might have been successful evolved as a human trait through evolution.

The reason we might use the concept of ‘homo economicus’ arises from two factors. Firstly, there is little truth in it – humans avoid uncertainty and make deals and use institutions in order to minimize uncertain factors in their everyday life. Second, ‘homo economicus’ is useful concept in evaluative simulations of societies and economics. ‘Homo economicus’ also works as a good intuition pump. Even if we reject it as the true state of affairs – it still might lead us to learn many new things about the psyche of the human mind.

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