Morals on the scales
Imagine you’re back in elementary school. It’s the birthday of one of the kids in your class — the kid who has been pestering your little brother for weeks. The bully in question approaches your desk with a bag of candy from which everyone can grab a couple of sweets in celebration of the happy event. They are your favourite kind, but you, you look the other way — you will not have any confectionery from your little brother’s tormentor.
Even if this particular situation has not actually happened to you, I expect that you can vividly imagine the emotions involved, and how you too might have chosen to forego the chance of a favourite sweet in the circumstances. It is an illustrative, and far from rare, instance of what looks, at first sight, as a case of cutting off one’s nose to spite one’s face.
A sacrifice… for what?
From an economic perspective, you would not have made a sacrifice — no candy! — without getting anything obvious in return. Sometimes, people engage in what is known as ‘costly punishment’: they incur a cost themselves in order to harm another person as punishment for some transgression. The idea is formalized in the ultimatum game: one player (the proposer) is given a sum of money, which they can split with the other player (the receiver) as they see fit. However, if the receiver is unhappy with the share they are offered, they can reject the offer, in which case nobody gets anything.
Standard economic theory would predict that the receiver would accept even the smallest share of the total amount as that would make them better off, but in practice offers deemed too small tend to be rejected. The receiver sacrifices their share in order to punish the selfishness of the proposer, and that outcome is a literal expression of the receiver’s willingness to pay for this punishment.
But in this case, the bully is not punished. Quite the contrary, in fact: after distributing the sweets to your more eager fellow pupils, there will be more left over to take back home thanks to your…