Download - SN- Lecture 5
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Social PreferencesLECTURE 5
RATIONALITY &
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To cover the findings on social preferences & individual behavior
To understand the link between microlevel preferences & macrolevel outcomes for these findings
Aim Lecture 5
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Experiments run according to a fixed protocol
Participants receive written rules of the game
Decisions are usually anonymous
Subjects get paid depending on their decisions (no flat payment)
No deception
EXPERIMENTSWE KNOW THAT
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Dictator game
Ultimatum game
Gift exchange game
Trust game
Public goods game
EXPERIMENTSMeasure various aspects of people’s
social preferences
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Practical 4Dictator Game
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Dictator gameForsythe et al. 1994
What is the rational behavior of the sender?
ALTRUISM
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Dictator gameForsythe et al. 1994
What is the rational behavior of the sender?
A rational and selfish dictator will keep all the money
ALTRUISM
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Dictator gameNo support for the selfish prediction
A rational and selfish dictator will keep all the money
What is the rational behavior of the sender?
Positive SharingAltruismOther-regarding Preferences
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Dictator gameNo support for the selfish prediction
22% transferred a positive amount
Dictators share about 28% of their endowment
However, it matters:
Who is the recipient?
Higher transfers to a charity than to another participant
Sociodemographical Background
Older dictators transfer more money than younger ones
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Ultimatum gameGuth et al. 1982
Sender
FAIR SHARING
Offers around 40% to 50%ReceiverRejects offers below 30%
Offers in the ultimatum game are substantially higher than in the dictator game. Why?
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Ultimatum gameProposer
FAIR SHARING
If the proposer expects that a low offer might be rejected, it is rational to offer an amount more likely to be accepted
The fact that people reject offers poses a bigger challenge
People might reject for emotional reasons
They feel unfairly treated and want to punish greedy intentions
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Methods
Low offers
Neuro-scientific
Activate areas of the brain associated with anger and disgust
People reject low offers because they consciously want to reject them
Sanfey at al. 2003
Strength of activation of these areas
Predicts the probability of rejection quite well
Social Preferences:
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Practical 5Gift Exchange
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Effort is not contractibleFehr et al. 1993
Gift Exchange
Effort Profit employer Cost employee Payoff employee
Wage Profit employer Payoff employee
What is the rational behavior?
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Effort is not contractibleRational players
Gift Exchange
Irrespectively of the wage, will choose the minimum effort (costly)
Employees:
Have incentives to pay the lowest wage
Employers:
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Positive ReciprocityFindings
Gift Exchange
tend to reward generous wage offers by high effortsEmployees:
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Practical 6Trust Game
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The Trust GameBerg et al. 1995
Trust & Trustworthiness
What is the rational behavior of the receiver?
What is the rational behavior of the sender?
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The Trust GameWhat is the rational behavior of the investor and the receiver?
Selfish recipients will not return anything, irrespective of the amount received
Recipient:
Investor:Rational and selfish investors would foresee this and invest nothing
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Measuring TrustWhy does the game measures trust?
Any amount transferred is tripled
Transferring the whole endowment will maximize the joint income of both players
Transferring “X” pays off only if receiveing at least “X” back
Sending a positive amount signals trust
Back transfers measure trustworthiness
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Trust GameFindings
Trustors send on average $5.16 (between $0 and $10)
Trustees return on average $4.66
Almost 50% of the trustees returned a positive amount (25% exceeded the initial transfer)
Older people trust more & are more trustworthy
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Practical 7PD Game
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Cooperation & Free-riding
PD & PG Games
They are the most important vehicle for studying cooperation problems in controlled laboratory experiments
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Prisoner’s DilemmaIt’s been extensively studied
Main aspects of interest:
The extent of cooperation in one-shot games
The importance of strategic incentives
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Two studiesCooper et al. 1996 & Andreoni and Miller 1993
Design:
Ten rounds Two treatments: Stranger & Partner
What is the rational behavior?
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Rational PDWhat is the rational behavior?
Why? Stranger: Each play is against a new opponent (one-shot)
Partner: Backward Induction- In the last period both will defect, and so on...
Under assumptions of selfishness and rationality, all players in both conditions are predicted to defect
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Findings PD
Stranger: Cooperation at least 20% of the times
Partner: Cooperation at least 50% of the times
People are prepared to cooperate even in one-shot games
The possibility to behave strategically strongly increases cooperation
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Repeated Cooperation
What happens if groups become larger?
The strategic gains from cooperation that comes from repeated interactions are a powerful force in explaining real-world cooperation in small and stable groups
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Large Groups?What happens if groups become larger?
Bilateral PD: A player can punish a defector by defecting as well
Large Groups: Not possible. Defection punishes defectors and other cooperators
Punished cooperators might then defect
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Practical 8PG Game
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Public Goods GameExperiments study cooperation for the
provision of public goods
What is the rational behavior?
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Public Goods GameWhat is the rational Behavior?
A rational and selfish individual has incentive to keep all the points
The group:
Better off, as a whole, if everybody contributes all 10 points
Tension between individual incentives & collective benefits
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PG GameCommon Results
Design: 10 rounds 20 tokens Partner & Stranger
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PG GameMain Findings
Positive contributions (one-shot) Sociodemographic Variables:
Older people cooperate more Rural residents contribute more than urban ones
Strategic incentives matters Partners contribute more than strangers
Contributions decline over time to very low levels
Why?
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Altruistic Punishment
The only way a cheated cooperator can avoid being a sucker is by reducing cooperation
Punishing everyone, even other cooperators
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If group members can identify a defector and punish her or him
Will this
Altruistic Punishment
Solve the free rider problem Prevent the breakdown of cooperation
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Design:
Punishment in Repeated PG Games
Second Stage: after subjects made their contribution Information: Contribution of each group member Punishment: Max. 10 points to each group member (costly)
For every point, the punisher’s income decreases 10% Treatments: Stranger & Partner
Fehr and Gachter 2000
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Results
Strong increase in contributions, with punishment Partners contribute more than strangers
100% > 60% of the endowment
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Micro-Macro Link
Relation between individual motives & behavior of the collective
Cooperation declines over time
Results in PG games without punishment
Cooperation stabilizes or increases
Results in PG games with punishment
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These differences in microlevel motivations produce a macrolevel outcome in which everyone eventually free-rides
Why the decline?
Some are free riders, independently of others’ contributions Some are conditional cooperators
Perhaps people are heterogeneous in their cooperative inclinations
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Micromotives Macrobehavior
Fischbacher and Gachter 2010
Design: Indicate contributions in the strategic form Free-riders: No contribution - 30% Conditional cooperators: Increase contribution. -50%
Other 20% complicated patters
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Micro-MacroConditional cooperators cooperate if
others cooperate
If there are free-riders, conditionalcooperators reduce their contribution
Social preferences can explain the decay of cooperation
Even if not everyone is motivated selfishly, the aggregate outcome is one in which everyone
behaves selfishly
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Checklist
Individuals cooperate in different strategic conditions - even when the interaction only occurs once
Cooperation is affected by strategic behavior - interacting repeatedly with others increases it
Cooperation declines over time even between partners
Potential punishment increases cooperation and stabilizes it along time
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Questions?