INTERVIEW WITH ROBERT AUMANN
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very significant effect on the number of automobile accidents in the States. There
is a tremendous amount of price elasticity in people’s behavior. Another example
is how increasing the police force affects crime.
H: Let’s be more specific. Take the alcohol example. Why does it contradict the
behavioral approach?
A: The conclusion of so-called behavioral economics is that people don’t behave
in a rational way, that they don’t respond as expected to economic incentives.
Empirical economics shows that people do respond very precisely to economic
incentives.
H: If I may summarize your views on this, empirical economics is a good way
of finding out what people actually decide. On the other hand, much of what is
done in experimental work is artificial and people may not behave there as they
do in real life.
A: Yes. Let me expand on that a little bit. The thesis that behavioral economics
attacks is that people behave rationally in a conscious way—that they consciously
calculate and make an optimal decision based, in each case, on rational calcula-
tions. Perhaps behavioral economists are right that that is not so. Because their
experiments or polls show that people, when faced with certain kinds of decisions,
do not make the rational decision. However, nobody ever claimed that; they are
attacking a straw man, a dead horse. What is claimed is that economic agents be-
have in a way that could be described as derived from rationality considerations;
not that they actually are derived that way, that they actually go through a process
of optimization each time they make a decision.
H: This brings us to the matter of “rule rationality,” which you have been
promoting consistently at least since the nineties.
A: Yes, it does bring us to rule rationality. The basic premise there is that
people grope around. They learn what is a good way of behaving. When they
make mistakes they adjust their behavior to avoid those mistakes. It is a learning
process, not an explicit optimization procedure. This is actually an old idea. For
example, Milton Friedman had this idea that people behave as if they were rational.
Rule rationality means that people evolve rules of behavior by which they usu-
ally act, and they optimize these rules. They don’t optimize each single decision.
One very good example is the ultimatum game, an experiment performed by
Werner G¨uth and associates in the early eighties.
H: And then replicated in many forms by other people. It is a famous experiment.
A: This experiment was done in various forms and with various parameters. Here
is one form. Two subjects are offered one hundred Deutsch Marks, which in the
early eighties was equivalent to 150–200 Euros of today—a highly nonnegligible
amount. They are offered this amount to split in whatever way they choose, as
long as they agree how. If they cannot agree, then both get nothing. The subjects
do not speak with each other face to face; rather, each one sits at a computer
console. One is the offerer and the other, the responder. The offerer offers a split
and the responder must say yes or no, once the proposed split appears on his
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computer screen. If he says yes, that’s the outcome. If he says no, no one gets
anything.
This experiment was done separately for many pairs of people. Each pair played
only once; they entered and left the building by different entrances and exits,
and never got to know each other—remained entirely anonymous. The perfect
equilibrium of this game is that the offerer offers a minimum amount that still
gives the responder something. Let’s say a split of ninetynine for the offerer and
one for the responder.
H: The idea being that the responder would not leave even one Deutsch Mark
on the table by saying no.
A: That is what one might expect from rationality considerations. I say “might,”
because it is not what game theory necessarily predicts; the game has many other
equilibria. But rationality considerations might lead to the 99–1 split.
In fact, what happened was that most of the offers were in the area of 65–35.
Those that were considerably less—let’s say 80–20—were actually rejected. Not
always, but that was the big picture. In many cases a subject was willing to walk
away from as much as twenty Deutsch Marks; and the offerer usually anticipated
this and therefore offered him more.
Walking away from twenty Deutsch Marks appears to be a clear violation of
rationality. It is a violation—of act rationality. How does theory account for this?
The answer is that people do not maximize on an act-by-act basis. Rather, they
develop rules of behavior. One good rule is, do not let other people insult you.
Do not let other people kick you in the stomach. Do not be a sucker. If somebody
does something like that to you, respond by kicking back. This is a good rule in
situations that are not anonymous. If you get a reputation for accepting twenty or
ten or one Deutsch Mark when one hundred Deutsch Marks are on the table, you
will come out on the short end of many bargaining situations. Therefore, the rule
of behavior is to fight back and punish the person who does this to you, and then
he won’t do it again.
Of course, this does not apply in the current situation, because it is entirely
anonymous. Nobody will be told that you did this. Therefore, there are no repu-
tational effects, and this rule that you’ve developed does not apply. But you have
not developed the rule consciously. You have not worked it out. You have learned
it because it works in general. Therefore you apply it even in situations where,
rationally speaking, it does not apply. It is very important to test economic theories
in contexts that are familiar to people, in contexts in which people really engage on
a regular basis. Not in artificial contexts. In artificial contexts, other things apply.
Another example of rule rationality is trying to please. It is a good idea to
please the people with whom you deal. Even this can be entirely subconscious or
unconscious. Most people know that voting in elections is considered a positive
thing to do. So if you are asked, “Did you vote?,” there is a very strong tendency
to say yes, even if you didn’t vote. Camil Fuchs, one of the important polltakers
in Israel, gave a lecture at the Center for Rationality, in which he reported this: in
the last election in Israel, people were asked several hours after the polls closed,