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