I went to a great lecture by Nick Chater of Warwick Business School this morning. I have found most of his slides online, and thought I might share one with you. His thesis was that Nash (A Beautiful Mind) Equilibrium is insufficient to describe real human behaviour. He developed a broader concept which he called Virtual Bargaining. Much of the talk was taken up by examples^† in which the Nash equilibrium behaviours are either obviously ridiculous, or just not what people do. For trade unionists, the most interesting example was an experiment^‡ from 1998. There are three players: A, B and C. Player A has £100 to distribute among the three of them. He selects a distribution and then B either vetoes it or agrees to it; if she exercises the veto, nobody gets anything. Nash tells us that A should keep £99 for himself, offer a £1 sop to B, and give nothing at all to C. B should accept her £1, as it’s better than nothing.

Let’s make it more fun by renaming the players. A becomes bosses, B becomes trade unionists, and C becomes non-unionised workers. As in the real world, the bosses make an offer, we in the union accept or reject it, and those without a union have to take what they are given. So what actually happened in the experiment? After a little practice, the bosses settled down to offer roughly £60 to themselves, £30 to the unions, and £10 to the others. Nick’s message was that Nash equilibrium often does not correspond to real human behaviour. We trade unionists can draw another lesson. If you’re not in the union, you’re not in the decision, and you will be ripped off. You’ll see about a third of what you might reasonably expect. In the union, we get what looks like an almost fair offer. But that hides the fact that the bosses, by depriving others, are taking twice what they give us.

As I have written before—you need to join UCU. Now. Join here.

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† Example two, the boobytrap game, applies naturally to the purchase of the proposed replacement Trident nuclear missile submarines. Nash wouldn’t do it, because it could never offer an advantage, so why are nukes so popular?
‡ Werner Güth & Eric van Damme, Information, Strategic Behavior, and Fairness in Ultimatum Bargaining: An Experimental Study, Journal of Mathematical Psychology 42 pp 227–247 (1998).

Denis Nicole