Have you ever gone across town to get a bargain? Chances are you spent more on time and petrol than you saved. Have you ever wondered why?
Economists have an experiment they like to play. It’s called the ultimatum game. Here’s how it works.
There are two players. Player one gets an amount of money to divide up and has to offer an amount to the second player. Then the second player gets to make a decision. If they want, they can accept the offer. Or they can turn it down. If they turn it down, both players get nothing.
For example, the economists give me ten dollars, I offer you $5, you accept and we both go home happy.
They give me ten dollars and I offer you $2. You refuse, and we both go home with nothing. :(
Most of the time, the experiment is done only once. So if you turn down the money, you get nothing.
Economics predicts that people prefer something to nothing, but that’s not what the ultimatum game shows! Most of the time, if the offer is less than twenty percent of the total, player two would rather ‘punish’ player one than take the measly sum.
This experiment shock economists. It shows that humans have an inherent sense of fairness, and they will go out of their way to teach someone a lesson if they feel that person is being unfair. The benefits of teaching that person to be more generous will presumably end up being shared by everyone.
This could be why getting a bargain feels good. You might suffer to obtain it, but the selfish retailer is suffering too! You are teaching them that high prices will only hurt them in the long run. When you spend time and money driving past Coles to shop at Aldi it feels it like a selfless act.
This could even explain why we brag about bargains – in our reptile brain, seeking out a bargain feels like a community service. It feels like we’re contributing to keeping prices down for everyone.
This is especially true of repeated interactions. If you are holidaying in a faraway place, you are unlikely to experience the benefits of punishing an expensive retailer, so you make a more immediately rational calculus.
Interestingly, the ultimatum game produces similar results across cultures. In nearly every society, player one tends to try to make a fair split, and player two rejects low ball offers.
The exception is in economics graduate students, in whom exposure to economic theory has produced a warped sense of morality. These players tend to meekly accept whatever they are offered. These are probably the same people who calculate how long it will take to get to the supermarket, and then proceed to do all their shopping at 7-11…