When do people reject free money? A classic experiment in behavioural economics comes to Vietnam and the results suggest Vietnamese may be more generous than other nationalities. By David Hardy. Photo by Fred Wissink.
Can you imagine a young person saying ‘No’ to a free VND 20,000? Well, it’s happening. In recent months a student and I have been researching a curious situation in which college students routinely reject such money. Our results suggest Vietnamese are fairer than other nationalities.
The experiment is nothing new in economic studies. In the ultimatum game, a researcher tells two participants they will get a sum of money if they can agree on how to split it between themselves. The first person, the Proposer, must offer some fraction of the money to the second player and will keep the remainder for himself. If the second person, known as the Responder, accepts the offer, then they both get the money as agreed. But if the Responder rejects it, both people get nothing. They cannot collaborate and the game ends with the second player’s decision.
Traditional economics predicts that the Responder would take any positive offer — who would turn down free money? The Proposer should anticipate this reaction, and therefore offer only a tiny share to the second person. After all, people want to walk away with the most money for themselves, right?
This classic exercise has been performed countless times in North America, Europe and elsewhere. Now we have tried it out in Ho Chi Minh City.
In our experiment with the ultimatum game, we tested whether anonymity between the Proposer and the Responder would change the offers. We hypothesised that it would lower the offers because the Proposer would not fear retaliation and could not empathise with the Responder. With the help of 166 students at both the University of Economics and the University of Social Sciences and Humanities, we ran 83 trials, divided between 42 face-to-face tests and 41 anonymous ones. The students were tasked with splitting VND 100,000. Everyone received an additional VND 20,000 for participating.
The face-to-face trials were our control group. Two students sat at a table and made their decisions in writing. They could not talk to each other. We conducted the anonymous trials with a large group of students. Proposers made their offers, then we shuffled the papers and handed them out to Responders. The students knew who was in the other group, but didn’t know whom exactly they were playing against.
Contrary to expectations, we found no significant difference in the average offers when comparing the face-to-face and anonymous groups. This suggests that students’ generosity comes from a true belief in fairness or strategic thinking, rather than fear of retaliation. In other words, participants behaved the same whether they knew their partner or not.
One flaw in our setup is that our presence as researchers could have incidentally influenced the students. They might have been reluctant to give low offers when third parties were watching them. As with many experiments, it is hard to observe without affecting.
Across all 83 trials, Proposers offered on average 46 percent of the money to Responders. About half of the offers were evenly split 50/50. The outliers include one man offering a woman 100 percent — they were classmates. Two Responders anonymously rejected 60 and 50 percent, meaning they strangely wanted the majority of the sum. There were 15 offers of 30 percent or less, and nine of those were rejected.
These findings show that Vietnamese appear to be more generous than most other nationalities. The average offer from similar games in the United States is 41 percent, according to a 2003 comparison study out of the Netherlands. In France it’s 40 percent, in the United Kingdom 34 percent. Vietnam is about on par with Indonesia (47 percent) and Japan (45 percent). On the low end are Peruvians, who offered just 26 percent, unlike Paraguayans, who offered 51 percent.
If logic declares that people should be happy with any free money, how do we explain why Responders usually reject low offers? One theory is that they want to punish Proposers for being unfair. A second theory is pride: someone who accepts a low offer may be considered desperate for money.
Another puzzle is, why do Proposers offer more than the minimum? Don’t they want to maximize their payoff? Some have guessed that they see small offers as greedy and unethical. Others wonder if they fear retaliation from Responders after the game, such as through Facebook comments. A third explanation is that Proposers are thinking strategically. If they expect Responders to reject low offers, then high offers increase their chances of walking away with at least some money.
Behavioural economics is new to Vietnam. Traditionally, Vietnamese economists have researched business practices and industrial policy. Unlike in most western countries, local academia views economics as part of buisness education rather than a social science. So my research partner and I were encouraged by the positive response from students and university staff. Word-of-mouth was our most effective recruiting tool to carry out our ultimatum game. Many expressed interest in the purpose of the experiment. We plan to build on these trials and explore how ideas of fairness and reputation affect people’s decisions with money.
David Hardy is a lecturer at the University of Economics in Ho Chi Minh City.