The 10 dollar experiment

A 3rd party approaches you and your friend. They offer to give you 10 dollars on 3 conditions.

1. You must offer to split some of that 10 dollars with your friend. The exact amount is entirely up to you.

2. Your friend must agree to the proportion you've suggested.

3. You only get to make ONE offer. No negotiating allowed. If your friend rejects the proportion you've offered, NEITHER of you receive ANY money. The free 10 dollars is entirely revoked.

Many falsely believe this is a test which measures "fairness," but if you perform this experiment and focus on whether the 1st party had "fairly" split the 10 dollars, then you're missing the TRUE point of the experiment.

See, economists believe that this test is instead measuring what the 2nd party does - the friend. Say the 1st party had offered to keep 8 dollars for himself and only give the friend 2 dollars. The friend, feeling shafted, would generally refuse that offer, and nobody would gain anything. This is rather fascinating. It means someone would forego an opportunity to make themselves wealthier merely because someone else was getting even wealthier than they were. It's generally not helpful to turn down free money, so why then would some choose to do it? The answer generally given is, "because it's unfair."

This is, unfortunately, how the majority of people react, and this perspective carries over into politics. People routinely embrace policies which harm their own interests merely to prevent someone else from getting that which was deemed "unfair." It becomes - in their mind - more important to "punish" the rich guy than it is to just let everyone progress.

This exposes a fundamental flaw in most individual's understanding of economics. Is it really rational to forego 2 dollars just to make sure someone else couldn't get 8? Say for instance this experiment didn't occur but instead someone simply gave a person 2 dollars because they felt like being nice. Few individuals would have a problem accepting THAT 2 dollars. Absent the opportunity to stick it to the rich pperson, people almost always accept a proposal that increases their wealth. And yet, once inside the context of this experiment, the same people would often turn down that same 2 dollars.

...fascinating.

This is the problem with emotion being your main argument. It means a person's stance is not ACTUALLY about improving someone's life. If it were, people would be fine with the rich becoming richer SO LONG as the poor ALSO became richer. But they often aren't. The 10 dollar experiment illustrates that.

Because of this misaligned focus, policies which promise "equality of results" end up being embraced in spite of their known negative effects on wealth creation or quality of life.

So, which part of this experiment do YOU focus on? Are you more concerned with what the first party offers, and whether it's "fair" or not, or are you capable of seeing that the second party benefits no matter what the offer, so long as he/she doesn't turn it down out of spite?

I, for one, would accept any proposal which resulted in all involved parties getting richer, rather than one where NO ONE gained anything.