Understanding Social Preferences with Simple Tests

TL;DR: This paper found that subjects are more concerned with increasing social welfare, sacrificing to increase the payoffs for all recipients, especially low-payoff recipients, than with reducing differences in payoffs.

Abstract: Departures from self-interest in economic experiments have recently inspired models of “social preferences” We design a range of simple experimental games that test these theories more directly than existing experiments Our experiments show that subjects are more concerned with increasing social welfare—sacrificing to increase the payoffs for all recipients, especially low-payoff recipients—than with reducing differences in payoffs (as supposed in recent models) Subjects are also motivated by reciprocity: They withdraw willingness to sacrifice to achieve a fair outcome when others are themselves unwilling to sacrifice, and sometimes punish unfair behavior

Summary

Introduction

• Participants in experiments frequently choose actions that do not maximize their own monetary payoffs when those actions affect others’ payoffs.
• The authors analyze their results both by comparing the percentage of data that different models explain, and with regression analysis of the best-fit parameter values of the model of Section II.
• Unlike difference aversion, therefore, social-welfare preferences can explain the finding in their data that about half of subjects make inequalityincreasing sacrifices when these sacrifices are efficient and inexpensive.
• More than their specific findings and interpretations, in fact, the authors hope this paper helps move experimental research away from studying the existing, manifestly misleading, menu of games and towards a wider range of simpler and more diagnostic games.

II. Social Preferences

• And allows for the estimation of these parameter values in their empirical analysis below.the authors.
• Indeed, while their analysis stresses that their data contradict difference-aversion models, the authors do not think they have conclusively disproved these models.
• The parameter θ provides a mechanism for modeling reciprocity, which the authors shall return to below.
• Another way of writing this utility function that some readers might find more intuitive is to break it down into two cases: Rabin [1993] and Dufwenberg and Kichsteiger [1998] concentrated on modeling the general principles of reciprocity, and employed simplistic notions of fairness and distributional preferences.

III. Experimental Procedures and Results

• A total of 14 experimental sessions were conducted at the Universitat Pompeu Fabra in Barcelona, in October and November 1998, and University of California-Berkeley, in February and March 1999.
• Because an e-mail sent to randomly-selected people through the Colleges of Letters, Arts, and Sciences provided most of their participants, the Berkeley sessions included students from a broader range of academic disciplines than is common in economics experiments.
• Except in the case of Games 1-4, participants played more than one game in a session.
• Some aspects of their experimental design may discourage comparing their results to those of other experiments.
• To aid inferences about reciprocity, the authors have many sets of games where B’s choices are identical, but A’s prior choice (or lack thereof) is varied.

IV. Explaining Behavior by Distributional Preferences

• The authors compare the power of self-interest and distributional models (competitive, difference-averse, and social-welfare) to explain their data.
• Table II shows the explanatory power of various models, under the appropriate restrictions for ρ and σ.21 As the authors are not yet considering reciprocity motivations, which may influence 19.
• In the many games in which B’s preferences in response games, it is most appropriate to make comparisons using only the seven dictator games.
• The last two rows strongly suggest that social-welfare preferences play a more prominent role in B’s decision to sacrifice money although caution must be used, since in their set of games the average sacrifice needed to promote difference aversion is greater than that needed to promote social-welfare preferences.

V. The Role of Reciprocity

• In some games either parameter could explain behavior, and hence it appears that σ is reflecting the positive value of ρ in those games.
• Most interesting is the difference between Barc7 and Berk29, which is significant at p ≈ .00.
• Games where B can punish A for free also show only weak negative reciprocity.
• To give a more precise analysis of the role of reciprocity, consider the bottom two lines of Table VI, which remove the constraint on their regression analysis that θ = 0, the parameter measuring how “social-welfare misbehavior” by A affects B’s weight on A’s payoff.

VI. Multi-Person Games

• Though the authors emphasize two-player distributional preferences throughout the paper, they also ran several games with three players, whose results shed light on the issues discussed in previous sections, and on hypotheses specific to three-player games.
• In both cases, many subjects chose to increase total surplus at the expense of minimum payoff, while others chose to maximize the minimum payoff.
• Interest in light of their two-player results.
• People are more concerned about this aspect of the distribution among other players’ payoffs than about equalizing the self-other payoffs in the sense captured by difference-aversion models.
• Berk16 and Berk20 test the explanatory power of distributional preferences versus reciprocity, disentangled from self-interest.

VII. Summary and Conclusion

• This paper continues recent research delineating the nature of social preferences in laboratory behavior.
• Nor does their model capture evidence in the data for what might be called a complicity effect:.
• The authors view that difference aversion is unlikely to prove to be a strong factor in laboratory behavior does not mean that the authors believe comparable phenomena are unimportant in the real world.
• Indeed, the authors suspect situations resembling this game are far more common in the real world than situations resembling the ultimatum game.
• More generally, opportunities to affect another’s payoff at small cost to oneself is important economically, and suggests that reciprocity motives are likely to loom large.

Figures

Table V. Distributional Models as Explanations for B’s Sacrifice

Table VI. Regression estimates for B behavior (N=903)

Table 3.2: A’s Sacrifice Hurts B Maximize Sacrifice

Table 3.1: A’s Sacrifice Helps B Maximize Sacrifice

Table VII. B’s Response as a function of A’s help or harm

Table III. Consistency of Behavior with Distributional Models When the Prediction is Unique

Table II. Consistency of Behavior with Distributional Models

Table IV. B’s Sacrifice Rate by Effect on Inequality

Table I. Game-by-Game Results

Full text

UC Santa Barbara
Departmental Working Papers
Title
UNDERSTANDING SOCIAL PREFERENCES WITH SIMPLE TESTS
Permalink
https://escholarship.org/uc/item/0dc3k4m5
Authors
Charness, Gary B
Rabin, Matthew
Publication Date
2001-08-01
eScholarship.org Powered by the California Digital Library
University of California

UNDERSTANDING SOCIAL
PREFERENCES WITH SIMPLE TESTS
*
Gary Charness and Matthew Rabin
AUGUST 2001
Abstract: Departures from self-interest in economic experiments have recently
inspired models of “social preferences”. We design a range of simple
experimental games that test these theories more directly than existing
experiments. Our experiments show that subjects are more concerned with
increasing social welfare—sacrificing to increase the payoffs for all recipients,
especially low-payoff recipients—than with reducing differences in payoffs (as
supposed in recent models). Subjects are also motivated by reciprocity: They
withdraw willingness to sacrifice to achieve a fair outcome when others are
themselves unwilling to sacrifice, and sometimes punish unfair behavior.
Keywords: Difference Aversion, Fairness, Inequity Aversion, Social Welfare,
Non-Ultimatum Games, Reciprocal Fairness, Social Preferences, Ultimatum
Games.
JEL Classification: A12, A13, B49, C70, C91, D63.
* This paper is a revised version of the related working papers Charness and Rabin [1999, 2000]. We thank Jordi
Brandts, Antonio Cabrales, Colin Camerer, Martin Dufwenberg, Ernst Fehr, Urs Fischbacher, Simon Gächter,
Edward Glaeser, Brit Grosskopf, Ernan Haruvy, John Kagel, George Loewenstein, Rosemarie Nagel, Christina
Shannon, Lise Vesterlund, an anonymous referee, and seminar participants at Harvard University, Stanford
University Graduate School of Business, University of California at Berkeley, University of California at San Diego,
the June 1999 MacArthur Norms and Preferences Network meeting, the 1999 Russell Sage Foundation Summer
Institute in Behavioral Economics, the March 2000 Public Choice meeting, the April 2000 Experimental Symposium
at Technion, and the January 2001 ASSA meeting for helpful comments. We also thank Davis Beekman,
Christopher Carpenter, David Huffman, Christopher Meissner, and Ellen Myerson for valuable research assistance,
and Brit Grosskopf and Jonah Rockoff for helping to conduct the experimental sessions in Barcelona. For financial
support, Charness thanks the Spanish Ministry of Education (Grant D101-7715) and the MacArthur Foundation, and
Rabin thanks the Russell Sage, Alfred P. Sloan, MacArthur, and National Science (Award 9709485) Foundations.
Contact: Gary Charness / Department of Economics/ University of California, Santa Barbara/ 2127 North Hall, Santa
Barbara, CA 93106-9210. E-mail: charness@econ.ucsb.edu. Web page: http://www.econ.upf.es/home/charness/
.
Matthew Rabin / Department of Economics / 549 Evans Hall #3880 / University of California, Berkeley / Berkeley,
CA 94720-3880. E-mail: rabin@econ.berkeley.edu. Web page: http://elsa.berkeley.edu/rabin/index.html
.

1
I. Introduction
Participants in experiments frequently choose actions that do not maximize their own
monetary payoffs when those actions affect others’ payoffs. They sacrifice money in simple
bargaining environments to punish those who mistreat them and share money with other parties
who have no say in allocations.
One hopes that the insights into the nature of non-self-interested behavior gleaned from
experiments can eventually be applied to a variety of economic settings, such as consumer
response to price changes, attitudes towards different tax schemes, and employee response to
changes in wages and employment practices. To facilitate such applications, researchers have
begun to develop formal models of social preferences that assume people are self-interested, but
are also concerned about the payoffs of others. Different types of models have been formulated.
“Difference-aversion models” assume that players are motivated to reduce differences between
theirs and others’ payoffs; “social-welfare models” assume that people like to increase social
surplus, caring especially about helping those (themselves or others) with low payoffs;
reciprocity models assume that the desire to raise or lower others’ payoffs depends on how fairly
those others are behaving.
In this paper, we report findings from some simple experiments that test existing theories
more directly than the array of games commonly studied. We then fit our evidence to a simple,
stylized model that encapsulates variants of existing models as special cases, and formulate a
more complicated new model to capture patterns of behavior that previous models don’t explain.
A major motivation for our research was a concern about pervasive and fundamental
confounds in the experimental games that have inspired recent social-preferences models. Most
notably, papers presenting difference-aversion models have argued that Pareto-damaging
behavior—such as rejecting unfair offers in ultimatum games, where subjects lower both their
own and others’ payoffs—can be explained by an intrinsic preference to minimize differences in
payoffs. But this explanation is almost universally confounded in two ways: First, opportunities
for inequality-reducing Pareto-damaging behavior arise in these games solely when a clear
motivation for retaliation is aroused. Second, the only plausible Pareto-damaging behavior
permitted is to reduce inequality. Difference aversion has also been used to explain helpful

2
sacrifice—such as cooperation in prisoner’s dilemmas—as a taste for helping those with lower
payoffs. But here again two confounds are nearly universal: The games studied only allow
efficient helpful sacrifice that decreases inequality, and only when a motive for retaliation is not
aroused.
All of these confounds mean that the tight fit of these models may merely reflect the fact
that in many of the games studied their predictions happen both to be the only way that subjects
can depart from self-interest, and to be the same as the predictions of reciprocity.
1
To provide a more discerning examination of social preferences, our games offer an array
of choices that directly test of the role of different social motivations, by testing a fuller range of
possible departures from self-interest, by eliminating confounds within games, and by inviting
crisp, revealing comparisons across games. Our data consist of 29 different games, with 467
participants making 1697 decisions.
In Section II, we provide a simple linear, two-person model of preferences that assumes
that players’ propensity to sacrifice for another player is characterized by three parameters: The
weight on the other’s payoff when she is ahead, the weight when she is behind, and the change in
weight when the other player has misbehaved. This embeds difference aversion, social-welfare
preferences, and other preferences as identically parsimonious and tractable special cases of a
more general model. By way of the shift parameter, it also embeds a simple form of reciprocity.
In Section III we explain our experimental procedures and raw results. We interpret our results
without invoking intentions-based reciprocity in Section IV, and with reciprocity in Section V.
We analyze our results both by comparing the percentage of data that different models explain,
and with regression analysis of the best-fit parameter values of the model of Section II.
Our findings suggest that the role of inequality-reduction in motivating subjects has been
exaggerated. Few subjects sacrifice money to reduce inequality by lowering another subjects’
payoff, and only a minority do so even when this is free. Indeed, we observed Pareto-damaging
behavior more often when it increased inequality than when it decreased inequality. While this
comparison is itself confounded by other explanations, our data strongly suggest that inequality
1.
The analysis articulated in developing these models, on the other hand, usefully demonstrates that the
interpretations of authors (such as Rabin [1993]) that helpful sacrifice is based on positive reciprocity are
misleading—since such helpful sacrifice is for the most part as strong when no positive feelings are aroused.

3
reduction is not a good explanation of Pareto-damaging behavior.
2
By contrast, difference-
aversion models do provide an elegant insight into players’ willingness to sacrifice when ahead
of other players. Yet social-welfare preferences provide an even better theory of helpful
sacrifice. By positing far greater concern for those who are behind than those who are ahead,
they also predict helpful sacrifice by those with higher payoffs. By positing a concern for
efficiency, however, social-welfare preferences predict that even if players are behind they may
sacrifice small amounts to help those ahead. Unlike difference aversion, therefore, social-welfare
preferences can explain the finding in our data that about half of subjects make inequality-
increasing sacrifices when these sacrifices are efficient and inexpensive.
3
To test the role of reciprocity, we study simple response games where Player B’s choice
follows a move by Player A to forego an outside option, and compare B’s behavior to his
behavior given the same binary choice where A either forewent a different outside option or had
no option at all. Our data replicate recent experimental evidence that positive reciprocity is not a
strong force in experimental settings.
4
But subjects exhibited a form of reciprocity we call
concern withdrawal: They withdraw their willingness to sacrifice to allocate the fair share
towards somebody who himself is unwilling to sacrifice for the sake of fairness. Subjects also
significantly increased their Pareto-damaging behavior following selfish actions by A.
Overall, straightforward interpretation of specific games and summary descriptive statistics
show that social-welfare preferences explain our data better than does difference aversion, and
that subjects clearly behave reciprocally. Our regression analysis indicates that a B who has a
higher payoff than A puts great weight on A’s payoff. However, if B has a lower payoff than A
and no reciprocity is involved, the weight on A’s payoff is close to 0. When A has mistreated B,
B significantly decreases positive weight or puts negative weight on A’s payoff.
While most of our data and our formal tests concern two-player games, in Section VI we
discuss results in the five three-player games. These games provide some evidence for a multi-
2.
Other recent papers similarly providing data that calls into question the role of inequality reduction in Pareto-
damaging behavior include Kagel and Wolfe [1999] and Engelmann and Strobel [2001].
3.
Andreoni and Miller [1998], Charness and Grosskopf [2001], and Kritkos and Bolle [1999] find similar results,
with significant numbers of participants opting for inequality-increasing sacrifices to help others.
4.
One exception we find to this pattern is that positive feelings reduces difference aversion when self-interest is not
at stake. We return to this finding in our concluding discussion. We also note that McCabe, Rigdon, and Smith
(2000) find, in one simple game, significant and statistically significant evidence of positive reciprocity.

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This paper found that participants are more concerned with increasing social welfare than with reducing differences in payoffs, and that they withdraw willingness to sacrifice to achieve a fair outcome when others are themselves unwilling to sacrifice, and sometimes punish unfair behavior.