Sometimes what seems like stupidity locally, can be a part of a greater strategy. Other examples: Newcomb’s paradox, strategic ignorance.
In the example of a magical pie, if we agree to share the pie fairly, I can get 0.5 pie. But if I insist on getting 90% of the pie, and based on my previous experience with exploiting starving people I can predict that there is let’s say a 70% chance of you accepting the unfair deal, then I can get 0.63 pie on average. Getting 0.63 pie instead of 0.5 pie seems like a smart thing to do for an economical agent.
It is not a problem to lose some value, if more value is gained in turn. This is true even if things work probabilistically. Let’s say that today was one of those 30% unlucky days when a starving stranger refused my offer to split the pie 90:10. From the short-term perspective, I have gambled and lost a half of the pie; stupid me! From the long-term perspective, I am still getting more pies than if I kept offering 50:50 deals instead.
In companies, it is not unusual that some kind of internal inflexibility imposes “stupid” losses in short term, but generates profits in long term as everyone accepts the fact that the company is “stupid” and inflexible, and gives up trying to negotiate a better deal. (It is truly stupid only if it also generates losses in long term. Which is difficult to estimate, and I have seen many companies doing seemingly stupid things and staying profitable in long term, so I became skeptical of my feelings when they tell me that something is obviously stupid.)
Can you show how a repeated version of this game results in overall better deals for the company? I agree this can happen, but I disagree for this particular circumstance.
In the pie example, the obvious answer is that giving the other person only 10% of the pie prevents them from gaining the security to walk away next time I present the same offer.
In this case, the starving person presumably has to press the button or else starve to death, and thus has no bargaining power. The other person only has to offer the bare minimum beyond what the starving person needs to survive, and the starving person must take the deal. In Econ 101 (assuming away monopolies, information asymmetry, etc.), exploited workers do have bargaining power by being able to work for other companies, hence why companies can’t just do stupid, spiteful actions in the long term.
Sometimes what seems like stupidity locally, can be a part of a greater strategy. Other examples: Newcomb’s paradox, strategic ignorance.
In the example of a magical pie, if we agree to share the pie fairly, I can get 0.5 pie. But if I insist on getting 90% of the pie, and based on my previous experience with exploiting starving people I can predict that there is let’s say a 70% chance of you accepting the unfair deal, then I can get 0.63 pie on average. Getting 0.63 pie instead of 0.5 pie seems like a smart thing to do for an economical agent.
It is not a problem to lose some value, if more value is gained in turn. This is true even if things work probabilistically. Let’s say that today was one of those 30% unlucky days when a starving stranger refused my offer to split the pie 90:10. From the short-term perspective, I have gambled and lost a half of the pie; stupid me! From the long-term perspective, I am still getting more pies than if I kept offering 50:50 deals instead.
In companies, it is not unusual that some kind of internal inflexibility imposes “stupid” losses in short term, but generates profits in long term as everyone accepts the fact that the company is “stupid” and inflexible, and gives up trying to negotiate a better deal. (It is truly stupid only if it also generates losses in long term. Which is difficult to estimate, and I have seen many companies doing seemingly stupid things and staying profitable in long term, so I became skeptical of my feelings when they tell me that something is obviously stupid.)
Can you show how a repeated version of this game results in overall better deals for the company? I agree this can happen, but I disagree for this particular circumstance.
In the pie example, the obvious answer is that giving the other person only 10% of the pie prevents them from gaining the security to walk away next time I present the same offer.
I admit I don’t have a good answer for that.
(I suspect there may be something important in real life that is missing from this model.)
In this case, the starving person presumably has to press the button or else starve to death, and thus has no bargaining power. The other person only has to offer the bare minimum beyond what the starving person needs to survive, and the starving person must take the deal. In Econ 101 (assuming away monopolies, information asymmetry, etc.), exploited workers do have bargaining power by being able to work for other companies, hence why companies can’t just do stupid, spiteful actions in the long term.