Playing the Meta-game

In honor of to­day’s Schel­ling-point­mas, a true Schel­ling-in­spired story from a class I was in at a law school I did not at­tend:

As always, the class was dead silent as we walked to the front of the room. The pro­fes­sor only de­scribed the game af­ter the par­ti­ci­pants had vol­un­teered and been cho­sen; as a re­sult, we rarely were fa­mil­iar with the games we were play­ing, which the pro­fes­sor preferred be­cause his money was on the line.

Both of us were as­signed differ­ent groups of seven part­ners in the class. I was given seven slips of pa­per and my op­po­nent was given six. Our goal was to make deals with our part­ners about how to di­vide a dol­lar, one per part­ner, and then write the deal down on a slip of pa­per. Who­ever had a greater to­tal take from the deals won $20. All ne­go­ti­a­tions were pub­lic.

The pro­fes­sor left the room, giv­ing us three min­utes to ne­go­ti­ate. The class ex­ploded.

And then I hit a wall. Every­body with whom I was ne­go­ti­at­ing knew the rules, and they knew that I cared a hell of a lot more about the re­sults of the ne­go­ti­a­tion than they did. I was get­ting offers on the or­der of $.20 and less—re­sults straight from the the­ory of the ul­ti­ma­tum game—and no amount of beg­ging or threat­en­ing was chang­ing that.

Three min­utes pass quickly un­der pres­sure. When the pro­fes­sor re­turned, I had writ­ten a to­tal of $1.45 in deals: most peo­ple even­tu­ally ac­cepted my meta-ar­gu­ment that they re­ally didn’t want to carry small coins around with them, so they should give me a quar­ter and take three for them­selves, but two peo­ple waited un­til the last sec­ond and took 90 cents each. Even then, I only got ten cents from those two by threat­en­ing not to ac­cept one- or five-cent deals.

My op­po­nent, on the other hand, had amassed a rel­a­tive for­tune: over five dol­lars. It turned out that he had been us­ing the fact that he could make fewer deals than he had part­ners to auc­tion off the chance to make a deal. His part­ners kept nam­ing lower and lower de­mands, and he ended up get­ting the ma­jor­ity of each dol­lar with lit­tle effort.

I made a mock-an­guished face, as the pro­fes­sor ex­plained that the game was set up to demon­strate the effect of scarcity on the bal­ance be­tween mer­chants and cus­tomers. Yeah, yeah, mo­nop­o­lies are bad. Econ 101 stuff.

Then he turned to me and asked why I lost, when the odds were stacked in my fa­vor. I asked him what he meant; af­ter all, it was pre­cisely be­cause my part­ners knew that I could make seven deals that they could bar­gain against me.

He said, “But you could have torn up one of the slips.”

He was right. I was play­ing by the rules, when I should have been set­ting them.

Edit: ex­tra­ne­ous and hy­per­bolic ma­te­rial removed