November 19th, 2010

Badhat

So You Wanna Be A Dictator?

I've been thinking a lot lately about the Dictator Game. It's a psychological experiment where one person plays the role of a "dictator". There is another person called the "charity" in a separate room who can't see the experiment. The dictator is given an amount of money, like $50. They can choose to split their money with the unseen charity person, give a partial amount like $5, give it all away, or they could take everything. The charity person will never know who the dictator was.

One important theory in economics is that individuals try to maximize their own well being. In this model, the dictator would always take the entire $50. Instead, most trials of this experiment show the dictator taking most of the money, but still giving about a third to the charity. The Dictator Game is used to disprove the idea of rationality in economics, and has a lot of variations that try to show the ideas of altruism, trust, or revenge.

If I ever played this game, I'd split the money 50/50. Each of us would get $25. But then, I thought... what if there was a whole classroom of 100 subjects who all got to be the dictator, and only one charity? If everyone used my theory, the charity person would get $25 * 100 = $2,500! While all the rest of us got only $25, (which is one percent compared to the lucky charity person).

So, I decided that the amount I would give as dictator would be dependent not only on my own choices, but a guess at what everyone else would do. Plus, I might take into account the need of the charity. For example, let's say the whole classroom is going to go to the circus! Whoo! The circus! And $10 out of the $50 will be used for admission.

One idea is to achieve complete economic equality. Put everyone's money into a bucket ($50 * 100 = $5,000) and then divide it out equally among the dictator and the charity person (5000/101 = $49.50). Of course, that idea completely negates the idea of the Dictator Game... all dictators are forced to contribute everything.

Or, maybe the goal would be to make sure the charity person got enough to attend the circus, but not too much. Let's say $10 for admission, and another $10 for food. Then, each dictator just needs to contribute (20/100 = twenty cents). Two dimes, and the entire class of 101 people can all attend the circus.

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