We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern The model is incomplete information but nevertheless posed entirely in terms of directly observable variables The model explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is thought to play a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed, such as Bertrand markets (JEL C78, C90, D63, D64, H41)

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ERC: A Theory of Equity, Reciprocity, and Competition

With the publication of The Logic of Collective Action in 1965, Mancur Olson challenged a cherished foundation of modern democratic thought that groups would tend to form and take collective action...

/pdf/collective-action-and-the-evolution-of-social-norms-39il4hoxmh.pdf

Collective Action and the Evolution of Social Norms

This article discusses the economic implications of reciprocity. A long-standing tradition in economics views human beings as exclusively self-interested. In most economic accounts of individual behavior and aggregate social phenomena, the vast forces of greed are put at the center of the explanation. However, many people deviate from purely self-interested behavior in a reciprocal manner. Reciprocity means that in response to friendly actions, people are frequently much nicer and much more cooperative than predicted by the self-interest model; conversely, in response to hostile actions they are frequently much more nasty and even brutal. There is considerable evidence that a substantial fraction of people behave according to this dictum: People repay gifts and take revenge even in interactions with complete strangers and even if it is costly for them and yields neither present nor future material rewards. This notion of reciprocity is thus very different from kind or hostile responses in repeated interactions that are solely motivated by future material gains.

/pdf/fairness-and-retaliation-the-economics-of-reciprocity-3kli7g3xjv.pdf

Fairness and Retaliation: The Economics of Reciprocity

In recent years, there has been a steadily increasing interest on the part of economists in happiness research. We argue that reported subjective well-being is a satisfactory empirical approximation to individual utility and that happiness research is able to contribute important insights for economics. We report how the economic variables income, unemployment and inflation affect happiness as well as how institutional factors, in particular the type of democracy and the extent of government decentralization, systematically influence how satisfied individuals are with their life. We discuss some of the consequences for economic policy and for economic theory.

/pdf/what-can-economists-learn-from-happiness-research-tp056e628i.pdf

What can economists learn from happiness research

https://www.econ.uzh.ch/dam/jcr:ffffffff-9758-127f-0000-00003449356a/ArePeopleCondCooperative.pdf

Are people conditionally cooperative? Evidence from a public goods experiment

Why the rich are nastier than the poor

We present evidence from a natural field experiment designed to shed light on whether individual behavior is consistent with a neoclassical model of utility maximization subject to budget constraints. We do this through the lens of a field experiment on charitable giving. We find that the behavior of at least 80% of individuals, on both the extensive and intensive margins, can be rationalized within a standard neoclassical choice model in which individuals have preferences, defined over own consumption and their contribution towards the charitable good, satisfying the axioms of revealed preference.

/pdf/testing-consumer-theory-evidence-from-a-natural-field-3lfo7j11e9.pdf

Testing Consumer Theory: Evidence from a Natural Field Experiment

Comparative institutional analysis is a building block of law and economics. To compare different legal rules one analyses how incentives are affected by these rules and how subsequent individual behavior is affected by the induced incentives. Building on the rational actor paradigm, analyses of this kind typically require stable, i.e. exogeneously given preferences. This may cause a fallacy since all behavior can be rationalized by assuming appropriate preferences. However, for a long time economists refused to deal with endogenous preferences arguing that the question where preferences come from should be answered by scholars from other disciplines. Early exceptions are papers by Becker (1976) and Hirshleifer (1977) who argue that preferences are shaped in an evolutionary process. More than a decade later Giith and Yaari (1992) developed a tool to study systematically the evolution of preferences, the indirect evolutionary approach which meanwhile has been successfully applied to quite a number of questions2. The indirect evolutionary approach is based on two analytical stages: At the first stage individual behavior is determined for given preferences. At the second stage preferences are subjected to an evolutionary process — the material payoff (or, as biologists put it, the fitness) being derived via the solution of stage one. The line of reasoning can be illustrated in the following (biological) way: Individuals are endowed with preferences. Given any situation (say a market or a game) preferences determine behavior and thereby an allocation of goods.

Legal Design and the Evolution of Remorse

This is a survey of studies that examine competition in the presence of behaviourally biased or boundedly rational consumers. It will tackle questions such as: How does competition and pricing change when consumers are biased? Can inefficiencies that arise from consumer behavioural biases be mitigated by lowering barriers to entry? Do biased consumers make rational ones better or worse off? And will biased consumer behaviour be overcome through learning or education?

http://web-docs.stern.nyu.edu/old_web/economics/docs/workingpapers/2011/Zhou-BiasesCompetitionSurvery,%20May2011.pdf

Consumer behavioural biases in competition: A survey

In an artefactual field experiment, we implemented a crowdfunding campaign for an institute's summer party and compared donation and contribution framings. We found that the use of the word 'donation' generated higher revenue than the use of 'contribution.' While the individuals receiving the donation framing gave substantially larger amounts, those receiving the contribution framing responded more strongly to reward thresholds and suggestions. An additional survey experiment on MTurk indicated that the term 'donation' triggers more positive emotional responses and that emotions are highly correlated with giving. It appears that making a donation is perceived as a more voluntary act and is thus more successful at generating warm glow than making a contribution. We surmise that this extends to other funding mechanisms.The online version contains supplementary material available at 10.1007/s10683-022-09759-6. 

https://link.springer.com/content/pdf/10.1007/s10683-022-09759-6.pdf

Steffen Huck

Papers

Why the rich are nastier than the poor

Testing Consumer Theory: Evidence from a Natural Field Experiment

Legal Design and the Evolution of Remorse

Consumer behavioural biases in competition: A survey

Voluntary ‘donations’ versus reward-oriented ‘contributions’: two experiments on framing in funding mechanisms