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Thanks for the more concrete example—the pizza situation in the article seemed really contrived and unintuitive to me! One question this leaves me with and I do

Thanks for the more concrete example—the pizza situation in the article seemed really contrived and unintuitive to me! One question this leaves me with and I don’t think the article addresses is what happens when losses are sustained when collaborating. Your stock example provides a good basis for an exploration of this question. Say A puts $4000 in and B puts $2000 in with the expectation that they will double their money, but instead they lose it all. By the procedure outlined in article, the “pie” worth -$6000 would be evenly distributed, meaning both A and B would have to pay $3000. So A ends up with $1000 and B ends up with -$1000. This seems especially punitive to B, and they end up in a worse place than they would have with what the article calls the “power” arrangement, under which they would have $0 after losing only $2000 instead of $3000. I’m curious about how many weaker parties continue to favor the “pie” method when losses are divided the same way as gains—-my intuition is that a “pie”-style deal is typically reached only when there is an almost-certain probability of gain, but I’m curious about how negotiators actually behave!

HWR_14 5y ago
There is a whole subcategory of behavioral economics that can be summed up as "people treat potential losses and potential gains very differently". But what you're saying isn't the example that is being presented. You have A and B being equal partners with a loan from A to B of $1000. That's different from the kind of ultimatum style (with 100% certainty) game that is proposed. I would say a better example is that A owns 66% of a startup and B owns 33%. They decide to sell the tech for X dollars. However, they are offered a 2X buyout if both of them agree to work for 3 years at the acquiring company. There's no "partial" offer though, it's both partners or neither. How is the 2X split up? The contrived example fails because of the 33% and 66% wouldn't be assigned randomly.
Bromeo 5y ago
Without knowing much about the field, intuitively this seems reasonable. More potential return on your money generally means taking a higher risk (more volatile stock = more potential returns). The higher risk here means loosing a higher percentage of your investment (in fact >100%).

HWR_14 5y ago

There is a whole subcategory of behavioral economics that can be summed up as "people treat potential losses and potential gains very differently". But what you're saying isn't the example that is being presented. You have A and B being equal partners with a loan from A to B of $1000. That's different from the kind of ultimatum style (with 100% certainty) game that is proposed. I would say a better example is that A owns 66% of a startup and B owns 33%. They decide to sell the tech for X dollars. However, they are offered a 2X buyout if both of them agree to work for 3 years at the acquiring company. There's no "partial" offer though, it's both partners or neither. How is the 2X split up? The contrived example fails because of the 33% and 66% wouldn't be assigned randomly.

Bromeo 5y ago

Without knowing much about the field, intuitively this seems reasonable. More potential return on your money generally means taking a higher risk (more volatile stock = more potential returns). The higher risk here means loosing a higher percentage of your investment (in fact >100%).