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ECON0040 Weeks 6-7
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Weeks 6 and 7Social preferences
Introduction
• The traditional assumption that individuals are self-interested can be violated by
◦ Altruism
◦ Spite
◦ Fairness
◦ Reciprocity
• For example
De nitions from Coleman (1995)
• Agents
◦ Trustor- gives trustee the right to make a decision
◦ Trustee- makes a decision a ecting both trustor and trustee
• Actions
◦ Trustor places a trust in the trustee
◦ Trustee keeps the trust
• An exchange is facilitated by trust if
◦ Placing trust in the trustee puts the Trustor at risk
◦ Relative to the set of possible actions, the trustee’s decision bene ts the Trustor at a cost to
the trustee
◦ Both Trustor and trustee are made better o from the transaction compared to the outcome
which would have occurred if the Trustor had not entrusted the trustee
Under traditional models causes of cooperation are:
• Repeat interactions
• Contractual pre commitments
• Possible punishment threats
• When these aren’t available norms may still exist if sanctions or rewards are internalised by the
decision maker
• This is more likely when an individual clearly identi es with a particular group (this process is
socialisation)
How they are measured:
• Ultimatum game
• Dictator game
• Trust game
• Gift exchange game
• Public goods game
Experimental evidence
Evidence of non traditional preferences - Güth et al, 2003
• The proposer decides a portion x of total amount a to the responder
• The responder sees the o er of x and either accepts or rejects
, ◦ Accepts: (a-x,x)
◦ Rejects: (0,0)
• Traditional game theory predicts
◦ Responder accepts any x≥0
◦ SBPE of x=0
• Participants are told hypothetical story
◦ An uncle o ers to give niece and nephew 1000DM, niece proposes a split between herself
and her brother
◦ If nephew agrees they each get their share, if not they get nothing
• They are then asked
◦ If you were responder what would you propose with a minimum of 100DM
◦ If you were the nephew would you accept o ers going up in 100s
Results:
PROPOSER RESPONDER
a500for 501 Accept t sefor33.31
100for10.91
a min accept soonforas.li
accept loomforseat
Causes:
Responders rejecting low o ers;
• Inequality aversion- responders dislike having a lower payo compared to the proposer
• Negative reciprocity- responders dislike unfairness and are willing to punish the unfair behaviour
of the responder
Proposers o ering a positive amount:
• Altruistic preferences
• Proposer is sel sh and doesn’t want to be rejected
E ects of earned entitlement - Cherry, Frykblom and Shorgen, 2002
Method:
• A subjects take part in a money earning session without knowing
about the bargaining stage
◦ They completed a quiz
◦ At least 10 correct —> $40m—> become A1 subjects
◦ Otherwise —> $10 —> become A2 subjects
• They would then decide what amount, if any, to give to B
subjects
• Three di erent treatments
◦ Baseline treatment (B), no earning stage instead given either
$10 or $40
◦ Earnings treatment (E), no split to A1 and A2
◦ Double blind with earnings treatment (DBE)
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