Why are people against the bailout?

September 30, 2008 BY danariely

I would like to propose that one reason people oppose the government bailout is because they want revenge on the companies that helped lead us into this disaster. Even though they know they will lose money and it doesn’t help them at all, at a very basic level a part of them want to see the companies suffer.

Consider a study conducted by group of Swiss researchers led by Ernst Fehr (and by the way don’t you think it’s ironic that the Swiss are the ones doing research on revenge?) who examined revenge using a game we call The Trust Game. Here is how it is set-up: You are paired up with an anonymous participant. You are kept in separate rooms and you will never know each other’s identity. The experimenter gives of you $10. You get to make the first move. You must decide whether to send your money over to your partner, or to keep it. If you keep it, both of you get your $10 and the game is over. However, if you send him the money, the experimenters quadruple the amount and add it to the $10 so that the other player has his original $10 plus $40 (10 multiplied by four). The other player then decides whether to keep all the money, which means that they would get $50 and you would get nothing or they could send half of it back to you, which means you would have $25 each. This is the basic trust game and the question, of course, is whether you and people like you will trust the other person and send them the money- potentially sacrificing your financial well being-and whether the other person will justify the trust and share their earnings with you.

But the Swiss version of this game did not end there. If you sent your money to the other player and if he or she did not send the money back, you would have the opportunity to punish the bastard. You could spend money to make them suffer. In fact, for each dollar that you spend, they would lose $2. What do you think, if you were playing the game and the other person betrayed your trust, would you choose this costly revenge? Would you sacrifice your own money to cause them to suffer? The experiment showed that many people punished and they punished severely, yet this was not the most interesting part of the study.

What I didn’t tell you was that while the participants were making their decisions, their brains were being scanned by Positron Emission Tomography (PET). So that the experimenters could observe participants’ brain activation while they made these decisions and were able to see what parts of the brain correlated with their desire to punish. The basic picture that emerged from the brain imaging was activation in the striatum, which is somewhat surprising as this is a key part of the way we experience reward. In other words, according to the brain activation it looks like punishing others or, more specifically, the decision to punish others is related to a feeling of pleasure in the brain. What’s more, it turns out that those who had a high level of striatum activation, punished others to a higher degree. All of this suggests that punishment, even when it costs us something, has biological underpinnings. And this behavior is, in fact, either pleasurable or somewhat similar to pleasure.

While we somehow understand revenge on an intuitive level between individuals, I do suspect that companies, assuming that people are rational, completely miss and underestimate the motivation people have for revenge. Perhaps lawmakers ought to take this motivation into account as they draft a new bailout plan.