Surplus splitting strategy

Cross posted from Overcoming Bias. Comments there.

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When negotiating over the price of a nice chair at a garage sale, it can be useful to demonstrate there is only twenty dollars in your wallet. When determining whether your friend will make you a separate meal or you will eat something less preferable, it can be useful to have a longterm commitment to vegetarianism. In all sorts of situations where a valuable trade is to be made, but the distribution of the net benefits between the traders is yet to be determined, it can be good to have your hands tied.

If you can’t have your hands tied, the next best thing is to have a salient place to split the benefits. The garage sale owner did this when he put a price tag on the chair. If you want to pay something other than the price on the tag, you have to come up with some kind of reason, such as a credible commitment to not paying over $20. Many buyers will just pay the asking price.

This means manipulating salient ways to split benefits could be pretty profitable. This means people should probably be doing it on purpose. I’m curious to know if and how they do.

Often the default is to keep the way the benefits naturally fall without money (or anything else ‘extra’) changing hands. For instance suppose you come to lunch at my place and we both enjoy this to some extent. The default here is to keep the happiness we got from this, rather than say me paying you $10 on top.

So in such cases manipulating the division of benefits should mostly be done by steering toward more personally favorable variations on the basic plan. e.g. my suggesting you come to my place before you suggest that I come to yours. A straightforward way to get gains here is to just race to be the first to suggest a favorable option, but this is hard because it looks domineering to try to manipulate things in your favor in such a way. Unless you have some particular advantage at suggesting things fast and smoothly, such a race seems costly in expectation.

If in general trying to manipulate a group’s choice seems like a status-move or dominance-move, subtle ways to do this are valuable. Instead of a race to suggest options, you can have a prior race to make the options that you might want to suggest seem more suggestible. For instance if you’d prefer others come to your place than you go to others’ places, you can put a pool at your place, so suggestions to go to your place seem like altruism. If you know a lot of details about another person, you can use one of them to justify assuming that a particular outcome will be better for them. e.g. ‘We all know how much John likes steak, so we could hardly not go to Sozzy’s steak sauna!’. None of this works unless it’s ambiguous which way your own preferences go.

On the other hand if your preferences are very unambiguous, you can also do well. This is because others know your preferences without your having to execute a dominance move to inform them. If their preferences are less clear, it’s hard for them to compete with yours without contesting your status themselves. So arranging for others to know your preferences some other way could be strategic. e.g. If you and I are choosing which dessert to split, and it is common knowledge that I consider chocolate cake to be the high point of human experience, it is unlikely that we will get the carrot cake, even if you prefer it quite strongly.

So, strategy: if it’s clear that you have a pretty strong preference, make it quite obvious but not explicit. If you have a less clear preference, make it look like you have no preference, then position to get the thing you want based on apparently irrelevant considerations.

Even if the default is to transfer no cash, there can be a range of options that are clearly incrementally better for you and worse for me, with no salient division. e.g. If I invite you over for lunch, there are a range of foods I could offer you, some better for you, some cheaper for me. This seems quite similar to determining how much money to pay, given that someone will pay something.

In the lunch case I get to decide how good what I offer you is, and you have to take it or leave it. You can retaliate by thinking better or worse of me. You can’t very explicitly tell me how much you will think better or worse of me though, and you probably have little control over it. Your interpretation of my level of generosity toward you (and thus your feelings) and my expectations of your feelings are both heavily influenced by relevant social norms. So it’s not clear that either of us has much influence over which point is chosen. You could try to seem unforgiving or I could try to seem unusually ascetic, but these have many other effects, so are extreme ways to procure better lunching deals. I suspect this equilibrium is unusually hard to influence personally because there’s basically no explicit communication.

There are then cases where money or peanut butter sandwiches or something does change hands naturally, so ‘no transfer’ is not a natural option. Sometimes there is another default, such as the cost of procuring whatever is being traded. By default businesses put prices on items rather than consumers doing it, which appears to be an issue of convenience. If it’s clear how much surplus is being split, a natural way is to split it evenly. For instance if you and I make $20 busking in the street, it would be strange for you to take more than $10, even if you are a better singer. This fairness norm is again hard to manipulate personally, except by making it more or less salient. But it’s a nice example of a large scale human project to alter default surplus division.

When there are different norms among different groups, you can potentially reap more of it by changing groups. e.g. if you are a poor woman, you might do better in circles where men are expected to pay for many things.

These are just a random bunch of considerations that spring to mind. Do you notice people trying to manipulate default surplus divisions? How?

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