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Brian Burke: About Your Divorce (Letter 139) — When Justice Yields to Money

Oblique Strategy #33 — Does everyone have a price? If so, what’s yours?

The game is called ultimatum. Consider an imaginary pot containing $10. I propose a division of the money between you and me.

You can either accept or reject my proposal. If you accept, we divide the money as proposed. If you reject, we both get nothing.

I propose a split of $1 to you and $9 to me. If you’re like a large majority of people selected from cultures all over the world, you will reject.

You do this even though acceptance would make you richer by $1 more than you were a minute before the “game” began.

A simple definition of the economic man (Homo economicus) is one who acts in his own self-interest to maximize his economic welfare.

I took Econ 1 in 1963, and it was one of the axioms on which microeconomic theory was based. There are more nuanced definitions of Homo economicus, but your rejection of the $1 to $9 split threatens the validity of the concept.

Daniel Kahneman and Vernon Smith shared the Nobel Prize in Economics for their contributions to (or for actually creating) the field of behavioral economics, which is based on the assumption that Homo sapiens and Homo economicus are two quite different animals.

(See Letter 135 for reference to Kahneman and his book: Thinking, Fast and Slow.)

Their science is based on experiments designed around exercises similar to ultimatum. Kahneman has revealed many different implicit biases that make rational thinking more an exception than a rule.

His revelations could help improve decision-making, but Kahneman has expressed doubt about whether such improvement is likely.

Ultimatum was one of the exercises fundamental to the creation of behavioral economics. In its pure form, the offer is made once; it’s either accepted or rejected, and that’s the end of the exercise.

This is not a continuing series of games. Imagine each proposal as a single, unique, once-in-a-lifetime event.

You can assume these offers are made either by a greedy person or by a modern American Corporation merely doing its duty to seek a maximum return for its shareholders. It has a legal obligation to be indifferent to your welfare.

Imagine that the pot contains $100, and you can either reject or accept an offer where the corporation gets $90, and you receive the remaining $10. Now multiply the pot by 10: the corporation takes $900 and you walk away with $100.

If you have rejected these initial proposed spits, you should have a sense of what it means to have the power of the spoiler. The power to spoil means that you can prevent someone else from getting the benefit of a transaction.

Sometimes the spoiler pays a significant price to spoil. Sometimes the spoiler pays nothing to spoil, or the cost is not significant.

Let’s keep upping the ante. You receive 10 percent of hypothetical pots of, say, $10,000, $100,000, 1,000,000 or 5,000,000. That’s $1,000, $10,000, $100,000 and $500,000 pocketed, respectively.

At some point you will shift your focus from the inequality of the split and the corporation’s unjust enrichment to the amount of money you will get by accepting the split.

A refined Homo economicus will always act in his own self-interest when he believes his present condition will be improved or degraded by the outcome of the transaction he’s facing.

Economics prevail when the amount at stake is big enough to make a difference; when it makes a difference the economic man cares.

The level at which you start to care quantifies your marginal utility. People have differing objective circumstances and differing subjective personalities, which can account for different levels of marginal utility.

If you could direct the delivery of a sum of money to an organization in which you don’t have a direct interest, what’s the name of that organization? Call it an added circumstance to the game of ultimatum.

Consider all the proposals for a division where your organization gets the share of the proposed split instead of you. Did the level of marginal utility change? Were you more or less willing to reject a proposed distribution when you are out of the equation?

Let’s work with the $10,000 pot and a $1,000/$9,000 division. It’s obviously unfair, but would you reject it and lose $1,000?

Would you reject it if you are out of the game and your decision determined whether your organization receives or doesn’t receive the $1,000?

What does it mean if you are less willing or more willing to exert your sense of justice when the money would go to your organization and there is no direct cost to you?

From a quantitative perspective the $500,000/$4,500,000 split is the most inequitable, but when they are getting the “mere” $500,000 the number of people who would reject it is much smaller than the number of people who would reject the $1/$9 split or the $10/$90 split.

Get an idea of your level of marginal utility by noting the following:

1. All the divisions are unfair because the corporation gets so much more than you do. At some amount the benefit of the distribution to you trumps the unfair distribution to the corporation. What is that amount? $_____

2. At some point you will disregard the unfairness of the division in order to get the money for your organization. What is that amount? $_____

If your numbers are different, why?

Let’s take a final run with the division of the $1 million pot. Divide it any way you want, and I will accept or reject your proposal on behalf of my client, which is a mysterious organization about which I know very little.

The rules allow the organization to compose a single message about the division for me to deliver to you. The statement made by the organization may or may not be a truthful expression of its intent. The statement reads as follows:

“The directors of the organization have met and discussed the situation whereby you will propose a division of $1 million between you and the organization.

“Our stated goal and the purpose of this message is to maximize the amount distributed to us without reference to any considerations of ‘equity’ or ‘fairness.’ 

“We have used the Random Number Generator to select a single integer between 1 and 1,000,000. If the proposed division is equal to or in excess of the integer selected, we will accept the division.

“If your proposed division is less than the integer, your proposal will be rejected and no division will be made — we both lose.”

(1) I suggest that you should first decide whether you believe what the organization says. How likely is it that the statement is a ploy to get more money and the organization will, in fact, accept anything you propose?

If you are right, you can get away with an offer of $1 for the organization and $999,999 for yourself. [This is a classic decision-making exercise where you, the decision-maker, must work from incomplete information.]

If you decide the message is probably false, what is your proposed division?

(2) Another possibility is that the message is a ploy, and the organization will accept any division that exceeds its marginal utility level. If so, what amount would have a significant impact on the organization (about which you know nothing)? What’s the organization’s probable marginal utility level, and how do you determine your new division?

(3) If you decide to treat the statement as true, then the less you keep for yourself the more likely the amount going to the organization will be equal to or greater than their random integer. This means that your level of marginal utility should be at the heart of the decision.

The message is true. What’s your marginal utility level?

(4) After considering these three possibilities, and perhaps some of your own, what’s your final proposal?

Find out if your division was accepted by linking to this note on Google Drive.

Oblique Strategy #34 — When a house and a check for $974,790,317.77 just isn’t enough to resolve a divorce. (Yes, that’s nine hundred and seventy four million dollars!)

— Brian H. Burke is a certified family law specialist practicing family law and mediation in Santa Barbara. A researcher and educator in the field of divorce and family conflicts, he is also the creator of the Legal Road Map™. Click here for more information, call 805.965.2888 or e-mail [email protected]. Click here to read previous columns. The opinions expressed are his own.

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