Of chicken and eggs, but not as you think

On Tuesday, I wrote about an experiment that showed once again that men are more overconfident than women. In the investment world overconfidence is typically a drag on performance, but in politics and business, it can be a major advantage. To see how, let me explain a truly fascinating new game developed by Robert Akerlof and his collaborators that involves chicken and eggs.

This game is designed to simulate social systems, be they a political republic or a business. The game works as follows. A group of players come together. In the first round, they elect a leader. They do this in a simple fashion where each member of the group is asked if he wants to be a candidate for leadership or a voter. Each voter then votes for a candidate standing for election. One voter is then randomly chosen as the deciding voter and the candidate this voter selected will become leader in the next round.

After being elected, the leader receives a chicken. Each chicken lives for five rounds and lays several eggs in each round. The eggs are the currency in the system and can be used to purchase things.

To make things realistic, the researchers played the game in two different versions, a patronage version and a no patronage version. The no patronage version proceeds just like the first round where players can stand as candidate for election or decide to be voters. A deciding voter is selected at random, and this voter decides who will be leader next round and receive a new chicken.

In the patronage version the players who stand for election can pledge a number of eggs from the chicken they will receive if they get elected to the voter who votes for them. The deciding voter is then again selected randomly and the elected leader will receive a new chicken but has to give the promised number of eggs to the deciding voter who put him into office.

Note how in this game there is no inequality at the beginning. Every player has the same chance of becoming leader and the same amount of chicken and eggs. And in the game, it is impossible to discriminate between players based on race, gender, religion and other factors because leaders are selected based on a random process.

Yet, inequality still arises in the system. In the version of the game where candidates can pledge eggs to voters the inequality arises because the candidate who is elected leader in the first round has a chicken and several eggs while the rest of the players have not. Hence this candidate can run for election again pledging essentially all eggs from the additional chicken to his voter without losing any of his current eggs. Other players realise that and don’t even challenge that candidate, which in turn means that this candidate can run unopposed and wins the chicken and all future eggs it lays. The more often this candidate runs and wins, the bigger his advantage gets, and this leader effectively becomes the wealthy lord among the poor farmers.

But even in the version without patronage where candidates do not pledge any gifts to voters this inequality arises simply because some people are more confident and more likely to run for office and hence more likely to win the chicken and the eggs it lays. Thus, over time, inequality arises in that system as well, it just isn’t as severe as in the system with patronage.

And this is where gender differences come in. One of the fascinating results of the game is that women are slightly less likely to run for office than men. In the first and second round that doesn’t make much of a difference, but as time passes this small difference in confidence means that with every round women are about 1.3% less likely to win an election and a new chicken than men. Playing the game long enough an egg inequality establishes itself where women earn roughly 85% of the eggs that men earn.

This is a game that is obviously designed to mimic political systems, but the parallels in business and personal career paths are obvious. Women are slightly less prone to ask for a raise or a promotion and less likely to become a candidate for managing positions. Looked at individually, the difference is miniscule, but this small difference accumulates over time and a decade later women end up earning significantly less than men.

The lesson I learn from this is that a certain degree of inequality is inevitable in society and in business. Because people are behaving differently, some people will be better off than others, even if there are no biases against people of colour, women or members of certain religions. But what the game shows is that how much inequality there is depends on how the system is designed. It will be fascinating to see how this game of chicken and eggs can be used to analyse other factors like voters or lobbyists influencing candidates via donations, etc. I can’t wait for these results.