6SSPP332: Behavioural Political Economy (6SSPP332)
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Kings College London (KCL)
This is the revision bundle that I created in order to revise for 6SSPP332: Behavioural Political Economy. It goes through all of the relevant experiments, with the main findings and conclusions from each. Having a good grasp of these experiments really helped for the Part B essays in the exam. It ...
6SSPP332: Behavioural Political Economy (6SSPP332)
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By: alichelsea5 • 3 year ago
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FULL BREAKDOWN OF ALL EXPERIMENTS COVERED
Weeks 2 & 3 (beginning 21 January)
Lectures. Public Goods Games and cooperation
Market failure (e.g. global warming, arm/disarm, pollution, living in a well informed
society, etc),
Hobbesian arguments for constraints on liberty.
Experimental evidence
Motives for co-operation: conditional and unconditional co-operators
The influence of inequality and gender on cooperation
Reading:
Elster, J. Explaining Social Behavior ch 24.
Camerer, C. Behavioral Game Theory ch 5 (5.1-5.3)
Gachter, S. (2007) ‘Conditional co-operation: behavioral regularities from the lab and the
field and their policy implications’ in Bruno S. Frey and Alois Stutzer (eds): Economics and
Psychology. A Promising New Cross-Disciplinary Field. The MIT Press 2007, pp. 19-50.
http://www.nottingham.ac.uk/cedex/documents/papers/2006-03.pdf
• A rational and selfish agent will only equate his or her private marginal benefits and
costs of the public good, whereas efficiency requires that the sum of marginal
benefits should equal the marginal costs. Thus, there exists a tension between
individual and collective rationality, which is prototypical for many cooperation
problems. This tension lies at the heart of the matter in such diverse areas like
warfare, environmental protection, management of commons, tax compliance,
corruption, voting, the participation in collective actions like demonstrations and
strikes, donations to charities, teamwork, collusion between firms, embargos and
consumer boycotts, and so on.
• As I will show in this paper, the main finding from a large body of experiments that
have been conducted in a variety of settings in the last three decades is that there is
much more cooperation than predicted by standard theory (Ledyard 1995). Yet, the
experiments also show that voluntary cooperation is fragile in the sense that in
repeatedly played public goods games cooperation declines over time.
Findings:
• A large number of people are “conditionally cooperative” – they cooperate if they
believe others cooperate as well. Yet, a significant fraction of people is best
characterized as free riders. In summary, recent evidence suggests that there is
considerable heterogeneity with respect to people’s cooperation preferences, i.e.,
there are “types” of players.
1. First, people contribute substantially more than theoretically predicted. In
most experiments, “Partners” contribute more than “Strangers”. The
significance of this and related findings is that people are immediately able
to distinguish whether they are in a situation that requires strategic
cooperation (the “Partner” condition) or not (the “Stranger” condition) and
to adapt their behavior accordingly.
2. A second stylized fact is that cooperation is very fragile and tends to collapse
with repeated interactions. Why is this so? One explanation is that people
, have altruistic or “warmglow” preferences, but also have to learn how to
play this game. Since errors can only go in one direction, any erroneous
decision looks like a contribution. Palfrey and Prisbrey (1997) test these
explanations and find that the data are inconsistent with altruism. They find
some evidence for “warm glow” but also conclude that people learn and
commit fewer errors over time, which is why contributions decline. Notice
that warm glow, altruism and errors are motivations that are independent of
others’ contributions. Psychologists have long argued that people’s
cooperation behavior depends on what others do (e.g., Kelley and Stahelski
1970). Using the methodology of experimental economics Keser and van
Winden (2000) were among the first economists to argue for the prevalence
of conditional cooperation. Croson (2002) went one decisive step forward by
eliciting beliefs about other group member’s contributions.
• An important finding is that people’s contribution preferences are heterogeneous.
o Fischbacher et al. (2001) and Fischbacher and Gächter (2006) classify their
subjects according to their contribution function (for details see their
papers). A subject is called a “free rider” if and only if he or she contributes
zero in all 21 cases. A subject is called a “conditional cooperator” if the
contribution schedule is a positive function of the others’ average
contribution. A somewhat peculiar type is the “triangle contributor” whose
contribution is increasing in the others’ contributions for low values and
decreasing for high levels of others’ contributions.
Conclusion
• The testable consequences are that (i) in groups where group members are
randomly selected voluntary cooperation is fragile; (ii) there are group interaction
effects, i.e., people adapt their cooperation behavior to the relevant group they are
a member of; (iii) group composition matters, i.e., in groups that are composed of
“like-minded types” (groups composed of either co-operators or free riders) we
should see starkly different cooperation patterns; and (iv) belief management
matters, i.e., factors that shift the belief about how much others contribute will
influence contribution behavior. I discuss these four hypotheses and their
experimental support in turn.
• Subjects learn the contributions of the other team members during the repeated
interaction. The free riders have no reason to react to that information. The
conditional cooperators on the other hand will update their beliefs. Given that the
average conditional cooperator does not fully match the others’ contribution the
reaction will most likely be a decrease of contributions. There is no reason to expect
that the remaining types (triangle contributors and “others”) will behave in a way
that offsets the negative trend.
o Since the belief about others’ contribution is important for conditional
cooperators, our fourth conjecture says that any factor that moves these
beliefs will influence cooperation. In the experiments of Fischbacher and
Gächter (2006), for instance, beliefs evolved endogenously and mimicked
the decline in cooperation. To test how beliefs can be influenced, Gächter
and Renner (2005) developed a leader-follower design in a group of four
players who stayed together for ten rounds, which was known to the
subjects. Specifically, one group member was assigned “leader”. All group
members had the same payoff function (1). The sole difference between the
leader and the followers was that the leader made the first contribution
decision. The followers observed the leader’s contribution before they
, decided simultaneously about their contribution. Gächter and Renner (2005)
also elicited the followers’ beliefs about the contribution of the other
followers. This allows them to determine how the leader’s contribution
influences the beliefs about other followers’ contribution.
o In other words, a bad start will make it very hard for the leader to lead his
group by good example to high contribution levels. By contrast, a bold
leader who sets a good example right from the beginning will positively
influence follower’s beliefs and contributions.
• FIELD RESULT: Donating to charity: In both campaigns it was practice to list the
names, hometowns and donated amount of all donators either on television or in
newspapers which supported the campaigns. Donations by well-known politicians
and celebrities were particularly prominently featured. The results from the field
experiments discussed in section 2.2 and the lab results on how leader contributions
can shape followers’ contributions suggests that fund raising organizers did not only
rely on people's feelings of altruism, compassion and warm glow but also on
conditional cooperation. Conditional cooperation is of course not the only reason
why people donate to charities (see Andreoni, forthcoming, and Vesterlund,
forthcoming, for extensive reviews). People certainly also contribute for signaling
reasons (Glazer and Konrad 1996), social approval (e.g., Andreoni and Petrie 2004;
Soetevent 2005), or because observing others has informational value about the
charity (Romano and Yildirim 2001; Vesterlund 2003). Our results suggest that
genuine conditional cooperation may be an important determinant of people’s
philanthropy in addition to all other motivations.
VARIOUS IMPLICATIONS
TAXES
• Our results suggest that controlling for detection probabilities conditional
cooperators will be more likely to evade taxes (or falsely claim welfare benefits) if
they have the impression that many others do the same. Too many cheaters can
spoil tax morale. The evidence is consistent with this prediction. People are less
likely to cheat on their taxes or to commit benefit fraud if others behave honestly
(e.g., Cialdini 1989; Roth et al. 1989; Slemrod 1992; Andreoni et al. 1998; Rothstein
2000).
• First, there may be a direct effect by the concerned individual who may reciprocate
unfair treatment by authorities and/or the tax system by lower tax morale, simply
because the taxpayer resents unfair treatment (Smith 1992). Second, much like in
the leadership experiments discussed in section 3.4, which showed that the leader
strongly shapes the beliefs followers hold about other follower’s behavior, there
may be an indirect effect of tax authorities, via the beliefs on other tax payers’
behavior. The reason is that if many people share similar feelings and experiences,
then this will lower the belief that others have a high tax morale, which further
undermines tax morale. Similarly the government’s trust in the honesty of its
citizens, may lead to a direct effect of “trust breeds trust” (Feld and Frey 2002),
presumably because people like to be considered trustworthy. Again, if such feelings
are widespread, they may shape beliefs about other citizen’s tax morale and hence
reinforce the tax payer’s morale.
MANAGEMENT
• Our models predict that work morale is strongly shaped by the behavior of
management and co-workers. First, there may be social interaction effects in that
people adapt their work morale to those of their peers. Empirical evidence supports
, this prediction (Ichino and Maggi 2000; Falk and Ichino 2006). Second, our
leadership model, discussed in section 3.4, and further experiments on leadership
(e.g., Potters et al., 2004; Güth et al. 2004) suggest that managers may strongly
influence morale and voluntary cooperation…. “Once you as a CEO go over the line,
then people think it’s okay to go over the line themselves.” Motivated workers may
prefer that “bad apples” are fired because they do not like being “suckered” by their
colleagues and because it reestablishes beliefs about others’ team-spirit.
• Leading by example strongly shapes beliefs about what others are doing as the
experiments of section 3.4 have shown. Therefore, there is a “multiplier effect”,
because a bad example (dishonesty in tax matters, corruption, and unethical
behavior in other domains) may not only have direct effects on the concerned
individual but may also have indirect belief effects about how others will react. (is
this true? See bad apples article)
• Belief management happens not only through leaders, but also through effects like
the perceived fairness of the tax system, fair treatment by authorities, and direct-
democratic participation rights. The experimental results discussed above suggest
that these factors are very important and should be strengthened. Tax reforms
should improve the fairness of the tax system (based on careful evidence on how
fairly the tax system is perceived) not only because fairness is desirable in its own
right, but also because of its indirect effect on the beliefs about other citizens’ tax
morale.
DIRECT DEMOCRACY
• Direct-democratic participation rights may also have a strong effect on tax morale
(see, e.g., Feld and Frey 2002; Tyran and Feld 2002; Torgler 2005; Torgler and
Schaltegger 2005). First, people value participation for reasons of procedural
fairness (Benz 2005). Second, the results of referenda communicate people’s norms
and values in many issues and thereby shape people’s beliefs about others’ norms
and values. For constitutional reasons, granting direct-democratic rights is
admittedly not an easy task in representative democracies.
PUBLIC POLICY
• Since beliefs about others’ behavior are highly relevant for voluntary cooperation if
many people are conditional cooperators, policy should not only take into account
the incentive effects on the behavior of an individual, but also how policy affects the
beliefs and behavior of the majority of citizens who are conditional cooperators.
• If there is punishment, free riders have an incentive to cooperate and cooperators
do not feel “suckered”. Cooperators therefore are happy to cooperate. This suggests
that policy should aim to punish free riding (i.e., tax evasion, benefit fraud, and
corruption). The experiments described above suggest that the goal should be to
punish the free riders and at the same time to maintain the optimistic beliefs of the
cooperators, by reassuring them that they will not be “suckered” by the free riders,
so that they continue to uphold their morale together with other “like-minded
cooperators”.
o Yet, apart from the legal implementation (which might be relatively simple)
this is no easy task at all, given the behavioral regularities discussed above.
The reason is that punishment may entail monitoring and a general distrust
of the citizens. This is problematic for two reasons. First, there is evidence
that monitoring may crowd out intrinsic motivation and reciprocal behavior
(Frey 1993, 1997; Bohnet, Frey and Huck 2001; Fehr and Gächter 2002).
Second, monitoring may express distrust, which, in addition to the crowding
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