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Sunday, May 30, 2021

Win–Win Denial: The Psychological Underpinnings of Zero-Sum Thinking

Johnson, S. G. B., Zhang, J., & Keil, F. 
(2020, April 30).


A core proposition in economics is that voluntary exchanges benefit both parties. We show that people often deny the mutually beneficial nature of exchange, instead espousing the belief that one or both parties fail to benefit from the exchange. Across 4 studies (and 8 further studies in the Supplementary Materials), participants read about simple exchanges of goods and services, judging whether each party to the transaction was better off or worse off afterwards. These studies revealed that win–win denial is pervasive, with buyers consistently seen as less likely to benefit from transactions than sellers. Several potential psychological mechanisms underlying win–win denial are considered, with the most important influences being mercantilist theories of value (confusing wealth for money) and theory of mind limits (failing to observe that people do not arbitrarily enter exchanges). We argue that these results have widespread implications for politics and society.


From the Discussion

Is Win–Win Denial Rational?

The conclusion that voluntary transactions benefit both parties rests on assumptions, and can therefore admit exceptions when these assumptions do not hold.  Voluntary trades are mutually beneficial when the parties are performing rational, selfish cost–benefit calculations and when there are no critical asymmetries in information (e.g., fraud).  There are several ways that violations of these assumptions could lead a transaction not to be win–win.  Consumers  could have inconsistent preferences over time, such that something believed to be beneficial at one time proves non-beneficial later on (e.g., liking a shirt when one buys it in the store, but growing weary of it after a couple months). Consumers could have self-control failures, making an impulse purchase that proved unwise in the longer  term.  Consumers could  have other-regarding  preferences, buying something that benefits someone else but not oneself. Finally, the consumer could be deceived by a seller who knows that the product will not satisfy their preferences (e.g., a crooked used-car salesman).

These  are  of  course  more  than  theoretical  possibilities—many demonstrations of human irrationality have been demonstrated in lab and field studies (Frederick et al., 2009; Loewenstein & Prelec, 1992; Malmandier & Tate, 2005 among many others). The key question is whether the real-world prevalence of irrationality and fraud is sufficient to justify the conclusion that ordinary consumer transactions—like those tested here—are so riddled with incompetence that our participants were right to deny that transactions are typically win–win. We respond to this challenge with four points. 

First, an empirical point. It is not just the magnitude of win–win denial of interest here, but how this magnitude responds to our experimental manipulations. It is hard to see how the effects of time-framing or cueing participants to buyers’ reasons would produce the effects that they do, independent of the mechanisms we have proposed for win–win denial (namely mercantilism and theory of mind). It is especially difficult to see why people would claim that barters make neither party better-off if the issue is exploitation. Thus, even if the magnitude of the effects is reasonable in some conditions of some of our experiments because people’s intuitions are attuned to the (allegedly) large extent of market failures, some of the patterns we see and the differences in these patterns across conditions seem to necessitate the mechanisms we propose.

Second, a sanity check. We tested intuitions about a range of typical consumer transactions in our items, finding consistent effects across items (see Part A of the Supplementary Materials). Is it really that plausible that people are impulsively hiring plumbers or that their hair stylists are routinely fraudsters? If such ordinary transactions are actually making consumers worse-off, it is very difficult to see how the rise of market economies has brought prosperity to much of the world—indeed, if win–win denial correctly  describes most consumer transactions, one should predict a negative relationship between well-being and economic activity (contradicting the large association between subjective well-being and per capita income across countries; Stevenson & Wolfers, 2013). In our view, one can acknowledge occasional consumer irrationalities, while not thereby concluding that all or most market activity is irrational, which, we submit, would fly in the face both of economic science and common sense. Actually, to claim that consumers are consistently irrational threatens paradox: The more one thinks that consumers are irrational in general,  the more  one  must  believe that participants in the current experiments are (rationally) attuned to their own irrationality.