EWOT Goggles #5

My EWOT goggle entry for this week is about something that happened last week in recitation during the Ultimatum Game.


During the ultimatum game, there was one student who constantly rejected offers that were as high as 4-6, which in my opinion is a tremendous offer. As my TA Alex taught us following the game, one should pretty much accept every single offer presented to him/her because it is better to get something than to get nothing.


But this one student (I will call him Joe) rejected several offers that Alex advocated against doing. Joe's argument for doing this was because he felt like he was being taken advantage of, and didn't want to give other people a better deal.


But as we have learned in economics throughout the semester, it is important as an economist to focus on one's self-interest over one's feelings.


Adam Smith, the great economic philosopher, advocated the belief that looking out for one's self-interest is the key to accumulating wealth/success. Prof. Rizzo explained in class that Smith believed that the way to get rich and increase production is by making rational decisions that benefit one's self-interests.


And if you think about it, this makes a lot of sense. But Joe did not do this in class. He let his emotions get in the way of his decision making. I suppose some people would argue that Joe's was smart by the rejections he made, but according to Smith's theories, he was completely wrong.


This is because Joe had an opportunity to better himself (get extra-credit), but he let his emotions get in the way of his decision making. Thus, he wasn't acting in his best interest. It didn't matter how many points the presenter offered- the bottom line is that by rejecting the 6-4 deal, Joe was accepting 0 extra-credit points instead of 4, which hurts him because now he ends up with nothing.


It is interesting to point out that if Joe actually values his feelings more than becoming wealthier in terms of extra-credit, he may have actually made the right decision. But as Alex pointed out in our recitation, it is very important in the business world to not let emotions take over decisions. 


The bottom line is that in today's world, it is imperative to act in your best interest, and that pretty much always means trying to get SOMETHING as opposed to NOTHING.