2. The predictions made in (one-shot) prisoners’ dilemma models and the ultimatum games differ from the outcomes of actual experiments based on these games. What are these differences and explain...

2. The predictions made in (one-shot) prisoners’ dilemma models and the ultimatum games differ from the outcomes of actual experiments based on these games. What are these differences and explain why real world results might differ from the theory.

3. According to Utilitarian theory, what rule should guide decisions and the construction of institutions?

8. Although many utilitarian thinkers proposed that income redistribution was appropriate, they often proposed only mild shifts in income. What harm did they think too much income redistribution would do?

11. If interpersonal utility comparisons were not valid, what happens to (1) the utilitarian argument for income redistribution or (2) any statement, from a utilitarian perspective, about whether some policy or situation was good (for instance, that free trade is good).

14. The introduction of Pareto Optimality (PO) did not completely exclude “normative” thinking from mainstream economics for at least two reasons: economists often sneak in interpersonal utility comparisons when no one is looking (and do so by making very strong assumptions about how to add different utilities) and they often simply assume PO is something “good” and desired. 

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Karen P.L. Hardison eNotes educator| Certified Educator

Prisoners Dilemma: Researchers found that instead of behaving according to economists' predictions, real prisoners participating in the experiment opted for cooperation 56% of the time. This refutes economic theory that prisoner would predominantly look out for their self-interest because of being jaded and distrustful, which would compel them opt to defect. The researchers conclude that prisoners are not as "calculating, self-interested, and untrusting" as expected.

The Ultimatum: Real-world outcomes of ultimatums games show players act differently from what the economic model of self-interest predicts. Players often offer more than the minimum; the most frequent offer is a 50-50 split; players often reject low split offers.

  • The mean split is 60% / 40% (meaning that in a $10 game, the proposer offers the responder $4 and keeps $6).
  • The modal (most common) offer is a 50%-50% split.
  • Approximately 20% of low offers are rejected. ("The Ultimatum Game: Using Game Theory to Study Self-Interest")

The researchers conclude there is a flaw in the economic theory of self-interest as it does not cover any scenario in which a low offer is completely rejected. An hypothesized possible explanation is that selfishness theory discounts the motivator of human dignity; low offers may be an offense to dignity.

Utilitarian Theory - Construction of Institutions: John Rawls posits that, in utilitarian theory, institutions (institutions, laws, policies) must be constructed to be just and honor justice. Rawls therewith introduces the problem of determining what justice is. Utilitarian theory answers the problem by positing that institutions maximize total utility for everyone in society and that utility be understood as being a measure of happiness or satisfaction.

Utilitarian Theory - Income Redistribution: In utilitarian theory, income redistribution is based (in part) on the premise that poor people derive more utility, i.e., happiness, satisfaction, from one unit of money than a rich person does. Shifts in income were not recommended at the ultimate level of total equality because, it is reasoned, such a shift would be, among other things, a disincentive to strive for accomplishment and meaningful contribution to society. In some regards, it may be posited that such a redistribution would result in the same disregard of human dignity as is demonstrated in ultimatum games.

Utilitarian Theory - Interpersonal Utility Comparisons: If interpersonal utility comparisons are stated as invalid, the grounds for income redistribution collapses. According to Professor Tom Weston of San Diego State University, the five fundamental premises of utilitarian income redistribution are:

  1. The utility that each person derives from his income increases if his income gets larger, but an extra dollar of income produces less extra utility the more income a person already has.
  2. The utility that each person derives from his income depends only on how much he gets, not on the income of others.
  3. Each person obtains the same amount of utility from a given amount of income that any other person would get from that income.
  4. The total amount of income to be distributed does not depend on the way that that total is divided up among those receiving income.
  5. The morally right distribution is the one that maximizes total utility. (Tom Weston, "The Tendency Toward Equality in Utilitarianism")

These five lead to the sixth "Therefore" premise that states the conclusion of the first five.

6. Therefore, the morally right distribution of income is the one in which everyone receives an equal amount.

An invalidation of interpersonal utility comparisons would have less effect on the utilitarian idea of construction of institutions because there are other philosophical and moral premises, like justice, fairness, balance and happiness, that buoy up the utilitarian construction of institutions.