In a common version of the “Ultimatum Game,” Player A is asked to dole out $40 to himself and Player B. He can distribute the loot in either a $35-$5 split, or in a $25-$15 split. If Player B accepts the payout, both parties keep their cash, but if Player B says no, both players go home empty.
Theoretically, Player B should accept either offer: five dollars is, after all, better than nothing. It turns out though, that fairly often Player B will reject the lowball offer, presumably because he finds it insulting.
In a fascinating riff on this observation back in 2007, Harvard University professor Terry Burnham measured testosterone levels in a cohort of men that had volunteered to play the Ultimatum Game. Burnham observed that only 7% of Player B’s with below-average testosterone rejected the $5 offer, whereas 45% of Player B’s with above average testosterone rejected the offer.
Recently, a team of scientists led by Maurice Levi of the University of British Columbia wondered whether the notorious male sex hormone might similarly affect business outcomes from corporate take-over attempts. Merger-and acquisition deals are indeed similar to the Ultimatum Game with one important exception: companies that receive a takeover bid can negotiate a better price. And of course, stock price shifts, regulatory matters and a host of other variables often complicate matters.
Still, what the heck?
The researchers studied 357 takeover bids that took place between 1997 and 2007. Not being able to measure testosterone levels of the involved CEOs retrospectively, they used the age of the CEO as a proxy, since it is a known fact that testosterone levels decline with age.
Lo and behold they found that young (high-testosterone) CEOs who launched takeover bids were 20% more likely to withdraw their bids later after initially being rebuffed by the target company. They postulated that withdrawing the bid altogether rather than negotiating a higher price was a way for the young, high-testosterone bidder CEO to demonstrate “dominance.”
Maybe the Securities and Exchange commission should require publicly traded companies to disclose their CEOs’ testosterone levels in their quarterly reports…