A motivation for fairness also seems to be an important factor on eBay, in which the “Buy It Now” format—or an auction with just one buyer—resembles an Ultimatum Game; a seller offers an item at a price that a buyer can accept or reject. To test this hypothesis, Ockenfels and Bolton recruited 100 German university students with selling experience on eBay, divided them into 50 buyer-seller pairs, and asked the sellers to hawk $20 certificates (funded by the researchers) to their assigned partners on eBay.
Consistent with previous Ultimatum results, the most popular selling price was $10, which would result in an equal split of the experimental pot. All but one buyer accepted this offer. Prices above $17 were uniformly rebuffed as too greedy, and some also refused costs between $10 and $17, refuting the idea that monetary incentive alone governs the deal. On the contrary, in this bargaining situation an equal split maximizes profits, Ockenfels says, because buyers generally will not accept unfair offers and sellers seem to realize that. “Fair dealing pays off,” he concludes.
This article was originally published with the title Is Greed Good?.
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4 Comments
Add CommentI am introducing a new theory called " Theory of Sustainable Greed".
Reply | Report Abuse | Link to thisIn simple terms, we can explain the cyclical market movements, economic recessions can be explained away by applying this theory.
Nature or Market Forces, allow greed upto certain levels which can be sustained by the ethos and culture of the people of that country. It also provides you an additional cushion of 5 to 10% upto which the stabilisied greed level can be sustained. This can be called the sustainable greed level. Any further push upward leads to market/cyclical fall .
Any takers for this theory and can anyone guide me to develop this theory further.
B. Ravichandran
Instead of developing new theories, I think "selfishness" needs to be redefined. How is it in one's self-interest to lie, cheat, or steal? To deliberately fake reality will almost necessarily lead to disaster (psychologically, if not materially). Acting in one's self-interest means acting in accordance with reality from a long-term perspective. Sacrificing that for short-term gain is never in one's interest.
Reply | Report Abuse | Link to this"A rational, selfish person who single-mindedly strives for maximum profit. According to this notion, sellers should pocket buyers payments and send nothing in return. For their part, buyers should not trust sellersand the market should collapse."
Reply | Report Abuse | Link to thisYour 2nd and 3rd sentences contradict your first. A person acting according to rational self-interest does not act as if there are no consequences to his actions. If someone tries to rip someone else off, he essentially becomes that person's slave - his future depends entirely on that person's willingness to enact revenge, seek the help of the government, etc.
You fail.
It's called the curse of the commons. The problem lies with trust. If I don't "trust" my neighbors,. I will take my sheep out and graze all the land first, before someone else beats me to it, thus profiting me at the expense of the whole; first come first serve. However if EVERYONE would wait until the proper time to graze, the land would be sustainable for everyone instead of just the for the early birds. It only takes one sour apple to spoil the bunch. People want to trust, but sometimes they are too afraid, and the way our leaders (from CEO's to Political Leaders, to the whole credit and mortgage industries) it becomes obvious that trust is harder to come by.
Reply | Report Abuse | Link to thisThis was a great article and study, it really is amazing that e-bay and simliar online auctions do work.