Let’s play the ultimatum game.
Suppose that, with the generosity that always comes with giving away other people’s money, the US State Department has provided me with a US$100,000 grant to share with you in any proportion that I desire. Here is the catch: if you accept the split I offer, we both get to keep the respective shares I have proposed, but if you reject my offer, neither one of us gets to keep any of the money.
How should I propose to split the money with you? Should I offer you a relatively small share, say 10 percent, an amount approaching a 50:50 split, or a very generous 90 percent?
Since both you and I are rational, self-interested homo economicus, I should seek to maximize my share by offering you only $10,000 and keeping the $90,000 balance. Clearly, since this is found money for you, you would accept. You may think I am greedy or unjust, but as an economically rational person you would take the $10,000 rather than nothing. Knowing this, I will go ahead with the 10 percent offer.
What? Are you insane? You are irrationally rejecting my offer and choosing nothing rather than pocketing the $10,000 I want to give you?
The ultimatum game — with its many variations — is the iconic bargaining game in behavioral economics. Researchers find that, in many cultures, people offer “fair” splits approaching 50:50 and that offers of less than 20% are often rejected.
Explanations for this behavior vary, but the ultimatum game highlights, in our behavior, the presence of non-monetary components of utility. The “irrational” responses challenge the model of pure economic rationality advanced by standard economic theory. Since individuals who reject a positive offer, even a stingy one, are electing to get nothing rather than something, they must not be acting solely to maximize economic gain.
Let’s apply this behavioral insight to the formulation of US foreign policy. The foreign policy of the Unites States is defined as the way in which the country interacts with foreign nations and sets standards of interaction for its organizations, businesses, and individual citizens. As such our foreign policy must embrace and project our politico-economic values and principles. Yet, almost exclusively our foreign policy is unimaginatively predicated on concepts of economic determinism, emphasizing offers of aid, credit, trade incentives and the like. These are the nostrum for all our foreign relations ills.
The two principal competing foundational approaches to our foreign policy are: “Wilsonianism” which favors a self-sacrificial foreign policy reliant on, or subordinate to, international institutions, and “realism” which rejects the need for moral considerations emphasizing practical considerations. As dramatically opposite as these views are, they both presume that national actors are “rational” and that, independently of their views or actions against the United States, they will respond rationally to the embellished bribery of our diplomatic propositions.
Our foreign policy tools seem limited to a “show me the money” understanding of international relations and, as illustrated by the ultimatum game interaction, we are perplexed when our pecuniary-based policies do not bring the results we expect. Case in point, impoverished Bolivia recently rejected our aid and expelled the US Agency for International Development (USAID).
Currently, US government foreign aid is $50 billion and generous Americans privately contribute an additional $70 billion. However, throwing money around, to see what it will buy us, is not a foreign policy.
Our foreign policy shortcomings are particularly evident when dealing with totalitarian regimes espousing radical ideologies such as North Korea, Iran, or Cuba. In our worldview, we cannot understand why totalitarian regimes are willing to incur the high cost of rejecting our economic overtures when their peoples are in dire need of economic assistance. Evidently, their perception of utility or worth, as shown by the ultimatum game, is focused elsewhere.
What we do not recognize is that these regimes are sustained by their ideologies and that totalitarian ideology, by definition, requires an animus against freedom, and the pervasive violation of the natural rights of the citizenry. These regimes are not our fellow travelers and will not change their repressive ideologies persuaded by our financial incentives.
To rethink US foreign policy means to recognize that its guiding principle should be to protect our lives and property from foreign threats based on a principled, self-interested, rational, approach. It requires us to clearly distinguish friend from foe, to formulate self-interested foreign policy goals towards each, and to identify the assertive means to achieve our goals.
This article first appeared in the Miami Herald.