Friday, March 19, 2004

Economic Experiments

I have been participating in economic experiments at the University lately (2 so far). You get paid for participating based on the decisions that you make. I have been making my decisions in order to benefit the group equally or at least to benefit every member to the fullest possible.

For the first experiment, we were put into groups of two. We were given 100 points that represented money in this case 1 point was worth 10 cents. The other person in my group had to choose how many of the points he was willing to offer me. I had to choose the least number of points that I was willing to accept. Our decisions were hidden from each other. If my number was less than his number, the deal was accepted, and I was to receive the amount offered by my group member. If he offered less than I was willing to accept, it was a wash, and no one got any points. I figured that it would only be fair if we each got 50 points ($5) because obviously that's a 50/50 split. I set my number at 40 just in case, but the bastard had bid only 38 so we were both out.

Today, the experiment allocated me 100, other people 200, 300, and 100, to people in a group. Each point was worth 5 cents. We were able to choose how many of our points we wanted to keep, and how many we wanted to put into the pot. Our pay off was to be the amount we decided to keep plus the pot*0.4. This was a bit of a trick, to make people think that the pot was to be split evenly with no real gain. How ever that would only be true if the pot was multiplied by .25. Instead we would each get almost half of the pot. Each and every person would receive the greatest benefit if everyone contributed the same amount to the pot. For example if each person contributed 25 points, the pot would have 100 points and each person would get back 40 points. My thinking was that everyone maximizes their benefit by donating to the pot equally, so I'll donate 100 and hope that everyone else each donates 100 (because that is the most that every single person could donate) so that I could get 160 points and the other people would get 260, 360 and 160 respectively. The value donating to the pot decreases when you give more than the other people. The other three people only put in 100 points between them, so we had 200 points in the pot, giving me 80 points which ended up being only $4.00 which is better than the $0 I got last time at least.

-Gary, maybe the real experiment is to see how long it take for us suckers to catch on.

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