Behavioral Economics: The Trust Game With Revenge

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It goes something like this: You and an anonymous partner are each given $10, and you get to make the first move. You must decide whether to send your money over to your partner or keep it for yourself. If you keep it, each of you gets your $10 and the game is over. If you send it, the experimenters quadruple the amount to $40 – so now your partner has $50. The obvious question is: Why would you give away your $10 in the first place? The answer is that you hope you can trust your partner when he makes the next move. He can choose either to keep the $50 – leaving you with nothing – or send $25 back to you, so that you share equally in the spoils. If your partner is acting rationally and in his own best interest, he would never send you the $25. Knowing this, and acting equally rationally, you would never send him the money to start with. Ergo, you will do nothing and go home. The good news is that people are more trusting and reciprocating than standard economic theory would have us believe. In the experiment, many people gave away their $10, and many partners reciprocated by sending $25 back. But the Swiss game didn’t end there. If your partner chose to keep the $50, the experimenter would give you an opportunity in the next phase of the game to use some of your own money to punish him. For every dollar you spend, your greedy partner loses $2. So if you decided to spend $25, your partner would lose all his winnings. You might think that people who had just lost some money would be unwilling to lose even more just to “get their own back.” Seated comfortably right now, you might not be able to appreciate these feelings, but most of the people who were given the opportunity exacted severe revenge on their greedy partners. This finding was not the most interesting part of the study, however. While the participants were making their decisions, their

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