Oslo Summer School in Comparative Social Science Studies 2014

Social Preferences: Theories and Evidence

Lecturer: Professor Dirk Engelmann,
Department of Economics,
University of Mannheim, Germany

Main discipline: Economics

Dates: 28 July - 1 August 2014
Course Credits: 10 pts (ECTS)
Limitation: 25 participants


Course objectives
Social or other-regarding preferences refer to preferences of economic agents regarding other people’s outcomes. These preferences can be both benevolent and malevolent, but crucially they differ from selfish preferences without any regard for others. The course provides an introduction to key evidence about the relevance of social preferences in economic interaction as well as the most important theoretical approaches that aim at explaining these results.

Most of the discussed evidence will be from controlled laboratory experiments. Critique regarding the relevance of (laboratory) experiments on social preferences will be discussed as well.  Apart from methodological critique, experimental studies that critically reflect on prominent papers and research agendas will be presented in order to highlight the relevance of apparent subtleties in experimental design.

Furthermore, relevant direct tests of the theoretical approaches will be presented in order to clarify the usefulness of these models. The underlying motivations for behavior apparently driven by social preference, in particular intrinsic motivation and seeking of social approval, will be discussed as well. Finally, examples for applications of social preferences in economic models will be discussed.

The participants should therefore become familiar with the most relevant models of social preferences, their support and critique and the impact on economic theory.

Students also have the option or writing a 3,000 to 4,000 word essay within eight weeks after the course to receive a course certificate and earn credit for a PhD program. Students who fulfill this requirement with a passing grade will receive 10 points in their PhD account in the ECTS system.


Specific requirements
Some knowledge of game theory is helpful, but fairly basic experience is mostly sufficient. Knowledge of statistical analysis will make it easier to follow the data analysis in the experimental papers and thus enable a more critical view, but is not strictly necessary. The theoretical papers will be partly difficult to understand for non-economists, but the course aims at presenting the key insights in non-technical style to make them accessible to participants without a thorough training in economic theory.


COURSE OUTLINE

Lecture 1: Early classic experimental evidence of social preferences: Ultimatum games, dictator games, public good games, trust games.
The first lecture will illustrate the relevance of social preferences for economic interactions. Several of the most prominent early experiments will be presented and be contrasted with conventional predictions of economic theory.

Readings:

  • Güth, Werner, Rolf Schmittberger, and Bernd Schwarze (1982). An Experimental Analysis of Ultimatum Bargaining. Journal of Economic Behavior and Organization 3(4), 367-388.
  • Andreoni, James (1995). Cooperation in Public Goods Experiments: Kindness or Confusion? American Economic Review 85(4), 891-904.
  • Berg, Joyce, John Dickhaut, and Kevin McCabe (1995). Trust, Reciprocity and Social History. Games and Economic Behavior 10(1), 122-142.


Lecture 2: Peer punishment and third-party punishment.
This lecture will discuss one specific topic, the role of peer punishment and third-party punishment in the enforcement of pro-social behavior. This topic is chosen for an in-depth discussion for two reasons. First, it has been a particularly fruitful research area in recent years. Second, it serves to illustrate how experimental research can help qualifying possibly too simplified conclusions drawn from early experiments.

Readings:

  • Ostrom, Elinor, James Walker, and Roy Gardner (1992). Covenants with and without a Sword: Self Governance is Possible. American Political Science Review 86(2), 404-417.
  • Fehr, Ernst and Simon Gächter (2000). Cooperation and Punishment in Public Goods Experiments. American Economic Review 90(4), 980-994.
  • Nikiforakis, Nikos, 2008. Punishment and Counter-punishment in Public Good Games: Can we Really Govern Ourselves? Journal of Public Economics 92(1-2), 91-112.
  • Balafoutas, Loukas and Nikos Nikiforakis (2012). Norm Enforcement in the City: A Natural Field Experiment. European Economic Review 56(8), 1773-1785.
  • Ambrus, Attila and Ben Greiner (2012). Imperfect Public Monitoring with Costly Punishment: An Experimental Study. American Economic Review 102(7), 3317-3332.
  • Fehr, Ernst and Urs Fischbacher (2004). Third Party Punishment and Social Norms. Evolution and Human Behavior 25(2), 63-87.


Lecture 3: Models of social preferences I: distributional preferences
A first class of theoretical approaches to make sense of behavior exhibiting social preferences will be discussed in this lecture. These relatively simple models are based on preferences regarding the distribution of payoffs. Applications to some classical results as well as the consistency of such preferences will be discussed.

Readings:

  • Bolton, Gary E. and Axel Ockenfels (2000). ERC: A Theory of Equity, Reciprocity and Competition. American Economic Review 90(1), 166-193.
  • Andreoni,  James and John H. Miller (2002). Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism. Econometrica 70(2), 737-753.
  • Levine, David K. (1998). Modeling Altruism and Spitefulness in Experiments. Review of Economic Dynamics 1(3), 593-622.


Lecture 4: Models of social preferences II: reciprocity
In this lecture, a different class of social preference models will be discussed. These are crucially based on reciprocity, a tendency to react kindly to kind moves by others and unkindly to unkind ones. This captures intuitive results but comes at a price of substantially more complicated models.

Readings:

  • Charness, Gary and Matthew Rabin (2002). Understanding Social Preferences with Simple Tests. Quarterly Journal of Economics 117(3), 817-869.
  • Dufwenberg, Martin and Georg Kirchsteiger (2004). A theory of Sequential Reciprocity. Games and Economic Behavior 47(2), 268-298.
  • Cox, James C., Dan Friedman, and Vjollca Sadiraj (2008): Revealed Altruism. Econometrica 76(1), 31-69.


Lecture 5: Testing models of social preferences
Some of the key direct tests of the social preference models discussed in Lecture 3 will be presented in this lecture. Furthermore, evidence in favor of reciprocity rather than simple distributional preferences will be discussed. In addition, the consistency of behavior with a specific model across different choice situations will be addressed.

Readings:

  • Engelmann, Dirk and Martin Strobel (2004). Inequality Aversion, Effciency, and Maximin Preferences in Simple Distribution Experiments. American Economic Review 94(4), 857-869.
  • Cox, J.C. (2004). How to Identify Trust and Reciprocity. Games and Economic Behavior 46(2), 260-281.
  • Blanco, Mariana, Dirk Engelmann, and Hans-Theo Normann (2011). A Within-Subject Analysis of Other-Regarding Preferences. Games and Economic Behavior 72(2), 321-338.
  • Falk, Armin, Ernst Fehr, and Urs Fischbacher (2003). On the Nature of Fair Behavior. Economic Inquiry 41(1), 20-26.


Lecture 6: What do we learn from laboratory experiments on social preferences?
The literature on social preferences has to a large part been inspired by laboratory experiments. The conclusions have been criticized for a number of reasons. In particular the generalizability of evidence based on dictator games has been questioned. These issues will be discussed in this lecture.

Readings:

  • Bardsley, Nick (2008). Dictator Game Giving: Altruism or Artefact? Experimental Economics 11(2), 122-133.
  • Hoffman, Elizabeth, Kevin McCabe, and Vernon L. Smith (1996). Social Distance and Other-Regarding Behavior in Dictator Games. American Economic Review 86(3), 653-660.
  • Levitt, Steven D. and List, John A. (2007). What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World? Journal of Economic Perspectives 21(2), 153-174.


Lecture 7: Fairness Norms
Social preferences are typically related to an intuitive idea of fair behavior. However, what is fair may depend on the specific situation and also on ideological differences. This lecture will discuss evidence about this heterogeneity.

Readings:

  • Cappelen, Alexander W., Astri D. Hole, Erik Ø. Sørensen, and Bertil Tungodden (2007). The Pluralism of Fairness Ideals: An Experimental Approach. American Economic Review 97(3), 818-827.
  • Cappelen, Alexander W. , James Konow, Erik Ø. Sørensen, and Bertil Tungodden (2013). Just Luck: An Experimental Study of Risk Taking and Fairness. American Economic Review 103(4), 1398-1413.
  • Konow, James (2000). Fair Shares: Accountability and Cognitive Dissonance in Allocation Decisions. American Economic Review 90(4), 1072-1091.


Lecture 8: Comparisons across cultures, countries and social groups
One of the key results of the literature on social preferences is that people are heterogeneous in the extent of their social preferences. A natural question is then whether this also differs across social groups. This lecture discusses evidence.

Readings:

  • Roth, Alvin E., Vesna Prasnikar, Masahiro Okuno-Fujiwara, and Shmuel Zamir (1991). Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study. American Economic Review 81(5), 1068-1095.
  • Herrmann, Benedikt, Thöni, Christian, and Gächter, Simon (2008). Antisocial Punishment across Societies. Science 319, 1362-1367.
  • Henrich, J., Robert Boyd, Samuel Bowles, Colin F. Camerer, Ernst Fehr, Herbert Gintis, and Richard McElreath. (2001) In Search of Homo Economicus: Experiments in 15 Small-Scale Societies. American Economic Review, 91(2), 73-79.
  • Cappelen, Alexander W., Knut Nygaard, Erik Ø. Sørensen, and Bertil Tungodden (2014).  Social Preferences in the Lab: A Comparison of Students and a Representative Population. Scandinavian Journal of Economics, forthcoming.


Lecture 9: Social image and self-image as drivers of fair behavior
What are the reasons why people behave altruistically or fairly? Are they intrinsically motivated or do they want to preserve a positive self-image or social image? This lecture discusses theoretical approaches and experimental results on this issue.

Readings:

  • Andreoni, James and B. Douglas Bernheim (2009). Social Image and the 50-50 Norm: A Theoretical and Experimental Analysis of Audience Effects. Econometrica 77(5), 1607-1636.
  • Dana, Jason, Daylian M. Cain, and Robyn M. Dawes (2006). What You Don’t Know Won’t Hurt Me: Costly (but Quiet) Exit in Dictator Games. Organizational Behavior and Human Decision Processes 100(2), 193–201.
  • Dana, Jason, Roberto A. Weber and Jason Xi Kuang (2007): Exploiting Moral Wiggle Room: Experiments Demonstrating an Illusory Preference for Fairness. Economic Theory 33(1), 67-80.
  • Seabright, Paul (2009). Continuous Preferences and Discontinuous Choices: How Altruists Respond to Incentives. The B.E. Journal of Theoretical Economics (Contributions) 9(1).
  • Bénabou, Roland and Jean Tirole (2006). Incentives and prosocial behavior. American Economic Review 96(5). 1652-1678.
  • Ariely, Dan, Anat Bracha, and Stephan Meier (2009). Doing Good or Doing Well? Image Motivation and Monetary Incentives in Behaving Prosocially. American Economic Review 99(1), 544-555.
  • Tonin, Mirco and Michael Vlassopoulos (2013). Experimental Evidence of Self-Image Concerns as Motivation for Giving. Journal of Economic Behavior & Organization 90, 19-27.
  • Harbaugh,William T. (1998). The Prestige Motive for Making Charitable Transfers. American Economic Review 88(2), 277-282.
  • Soetevent, Adriaan R. (2011). Payment Choice, Image Motivation and Contributions to Charity: Evidence from a Field Experiment. American Economic Journal: Economic Policy 3(1), 180-205.


Lecture 10: Applications to economic theory and concluding discussion
If economic agents have social preferences, how does this change the predictions in standard economic models? In this lecture, we will have a look at some applications.

Readings:

  • Rey-Biel, Pedro. Inequity Aversion and Team Incentives (2008). Scandinavian Journal of Economics 110(2), 297-320.
  • Dufwenberg, Martin, Paul Heidhues, Georg Kirchsteiger, Frank Riedel, and Joel Sobel (2011). Other-Regarding Preferences in General Equilibrium. Review of Economic Studies 78(2), 613-639.
  • Schmidt, Klaus M. (2011). Social Preferences and Competition. Journal of Money, Credit and Banking 43(5), 207-231.

 

Reading list:

  • Ambrus, Attila and Ben Greiner (2012). Imperfect Public Monitoring with Costly Punishment: An Experimental Study. American Economic Review 102(7), 3317-3332. (16 pages)
  • Andreoni, James (1995). Cooperation in Public Goods Experiments: Kindness or Confusion? American Economic Review 85(4), 891-904. (14 pages)
  • Andreoni, James and B. Douglas Bernheim (2009). Social Image and the 50-50 Norm: A Theoretical and Experimental Analysis of Audience Effects. Econometrica 77(5), 1607-1636. (30 pages)
  • Andreoni,  James and John H. Miller (2002). Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism.  Econometrica 70(2), 737-753. (17 pages)
  • Ariely, Dan, Anat Bracha, and Stephan Meier (2009). Doing Good or Doing Well? Image Motivation and Monetary Incentives in Behaving Prosocially. American Economic Review 99(1), 544-555. (12 pages)
  • Balafoutas, Loukas and Nikos Nikiforakis (2012). Norm Enforcement in the City: A Natural Field Experiment. European Economic Review 56(8), 1773-1785. (13 pages)
  • Bardsley, Nick (2008). Dictator Game Giving: Altruism or Artefact? Experimental Economics 11(2), 122-133. (12 pages)
  • Bénabou, Roland and Jean Tirole (2006). Incentives and prosocial behavior. American Economic Review 96(5). 1652-1678. (27 pages)
  • Berg, Joyce, John Dickhaut, and Kevin McCabe (1995). Trust, Reciprocity and Social History. Games and Economic Behavior 10(1), 122-142. (21 pages)
  • Blanco, Mariana, Dirk Engelmann, and Hans-Theo Normann (2011). A Within-Subject Analysis of Other-Regarding Preferences. Games and Economic Behavior 72(2), 321-338. (18 pages)
  • Bolton, Gary E. and Axel Ockenfels (2000). ERC: A Theory of Equity, Reciprocity and Competition. American Economic Review 90(1), 166-193. (28 pages)
  • Cappelen, Alexander W., Astri D. Hole, Erik Ø. Sørensen, and Bertil Tungodden (2007). The Pluralism of Fairness Ideals: An Experimental Approach. American Economic Review 97(3), 818-827. (10 pages)
  • Cappelen, Alexander W. , James Konow, Erik Ø. Sørensen, and Bertil Tungodden (2013). Just Luck: An Experimental Study of Risk Taking and Fairness. American Economic Review 103(4), 1398-1413. (16 pages)
  • Cappelen, Alexander W., Knut Nygaard, Erik Ø. Sørensen, and Bertil Tungodden (2014).  Social Preferences in the Lab: A Comparison of Students and a Representative Population. Scandinavian Journal of Economics, forthcoming. (22 pages)
  • Charness, Gary and Matthew Rabin (2002). Understanding Social Preferences with Simple Tests. Quarterly Journal of Economics 117(3), 817-869. (53 pages)
  • Cox, J.C. (2004). How to Identify Trust and Reciprocity. Games and Economic Behavior 46(2), 260-281. (22 pages)
  • Cox, James C., Dan Friedman, and Vjollca Sadiraj (2008): Revealed Altruism. Econometrica 76(1), 31-69. (39 pages)
  • Dana, Jason, Daylian M. Cain, and Robyn M. Dawes (2006). What You Don’t Know Won’t Hurt Me: Costly (but Quiet) Exit in Dictator Games. Organizational Behavior and Human Decision Processes 100(2), 193–201. (9 pages)
  • Dana, Jason, Roberto A. Weber and Jason Xi Kuang (2007): Exploiting Moral Wiggle Room: Experiments Demonstrating an Illusory Preference for Fairness. Economic Theory 33(1), 67-80. (14 pages)
  • Dufwenberg, Martin, Paul Heidhues, Georg Kirchsteiger, Frank Riedel, and Joel Sobel (2011). Other-Regarding Preferences in General Equilibrium. Review of Economic Studies 78(2), 613-639. (27 pages)
  • Dufwenberg, Martin and Georg Kirchsteiger (2004). A theory of Sequential Reciprocity. Games and Economic Behavior 47(2), 268-298. (31 pages)
  • Engelmann, Dirk and Martin Strobel (2004). Inequality Aversion, Effciency, and Maximin Preferences in Simple Distribution Experiments. American Economic Review 94(4), 857-869. (13 pages)
  • Falk, Armin, Ernst Fehr, and Urs Fischbacher (2003). On the Nature of Fair Behavior. Economic Inquiry 41(1), 20-26. (7 pages)
  • Fehr, Ernst and Urs Fischbacher (2004). Third Party Punishment and Social Norms. Evolution and Human Behavior 25(2), 63-87. (25 pages)
  • Fehr, Ernst and Simon Gächter (2000). Cooperation and Punishment in Public Goods Experiments. American Economic Review 90(4), 980-994. (15 pages)
  • Fehr, Ernst and Klaus M. Schmidt (1999). A Theory of Fairness, Competition and Cooperation. Quarterly Journal of Economics 114(3), 817-868. (52 pages)
  • Güth, Werner, Rolf Schmittberger, and Bernd Schwarze (1982). An Experimental Analysis of Ultimatum Bargaining. Journal of Economic Behavior and Organization 3(4), 367-388. (22 pages)
  • Harbaugh,William T. (1998). The Prestige Motive for Making Charitable Transfers. American Economic Review 88(2), 277-282. (6 pages)
  • Henrich, J., Robert Boyd, Samuel Bowles, Colin F. Camerer, Ernst Fehr, Herbert Gintis, and Richard McElreath. (2001) In Search of Homo Economicus: Experiments in 15 Small-Scale Societies. American Economic Review, 91(2), 73-79. (7 pages)
  • Herrmann, Benedikt, Thöni, Christian, and Gächter, Simon (2008). Antisocial Punishment across Societies. Science 319, 1362-1367. (6 pages)
  • Hoffman, Elizabeth, Kevin McCabe, and Vernon L. Smith (1996). Social Distance and Other-Regarding Behavior in Dictator Games. American Economic Review 86(3), 653-660. (8 pages)
  • Konow, James (2000). Fair Shares: Accountability and Cognitive Dissonance in Allocation Decisions. American Economic Review 90(4), 1072-1091. (20 pages)
  • Levine, David K. (1998). Modeling Altruism and Spitefulness in Experiments. Review of Economic Dynamics 1(3), 593-622. (30 pages)
  • Levitt, Steven D. and List, John A. (2007). What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?  Journal of Economic Perspectives 21(2), 153-174. (22 pages)
  • Nikiforakis, Nikos, 2008. Punishment and Counter-punishment in Public Good Games: Can we Really Govern Ourselves? Journal of Public Economics 92(1-2), 91-112. (22 pages)
  • Ostrom, Elinor, James Walker, and Roy Gardner (1992). Covenants with and without a Sword: Self Governance is Possible. American Political Science Review 86(2), 404-417. (14 pages)
  • Rey-Biel, Pedro. Inequity Aversion and Team Incentives (2008). Scandinavian Journal of Economics 110(2), 297-320. (24 pages)
  • Roth, Alvin E., Vesna Prasnikar, Masahiro Okuno-Fujiwara, and Shmuel Zamir (1991). Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study. American Economic Review 81(5), 1068-1095. (28 pages)
  • Schmidt, Klaus M. (2011). Social Preferences and Competition. Journal of Money, Credit and Banking 43(5), 207-231. (25 pages)
  • Seabright, Paul (2009). Continuous Preferences and Discontinuous Choices: How Altruists Respond to Incentives. The B.E. Journal of Theoretical Economics (Contributions) 9(1). (17 pages)
  • Soetevent, Adriaan R. (2011). Payment Choice, Image Motivation and Contributions to Charity: Evidence from a Field Experiment. American Economic Journal: Economic Policy 3(1), 180-205. (26 pages)
  • Tonin, Mirco and Michael Vlassopoulos (2013). Experimental Evidence of Self-Image Concerns as Motivation for Giving. Journal of Economic Behavior & Organization 90, 19-27. (9 pages)


Additional literature:

The first two chapters contain overviews over early experiments on social preferences. The remaining papers will most likely be briefly discussed in the course but not be part of the core readings.

  • Camerer, Colin F. (2003). Behavioral Game Theory, Princeton University Press. Chapter 2
  • Ledyard, John (1995): Public Goods: A Survey of Experiment Research. In: John H. Kagel and Alvin E. Roth, Handbook of Experimental Economics, Princeton University Press.
  • Blanco, Mariana, Dirk Engelmann, Alexander K. Koch, and Hans-Theo Normann (2012). Preferences and Beliefs in a Sequential Social Dilemma: A Within-subjects Analysis. Working paper.
  • Costa-Gomes, Miguel A., Steffen Huck, and Georg Weizsäcker (2012). Beliefs and Actions in the Trust Game: Creating Instrumental Variables to Estimate the Causal Effect. Wissenschaftszentrum Berlin - Discussion Paper Series SP II 2012-302.
  • DellaVigna, Stefano, John A. List, and Ulrike Malmendier (2012). Testing for Altruism and Social Pressure in Charitable Giving. Quarterly Journal of Economics 127(1), 1-56.
  • Engelmann, Dirk (2012). How not to Extend Models of Inequality Aversion. Journal of Economic Behavior and Organization 81(2), 599-605.
  • Falk, Armin and Michael Kosfeld (2006). The Hidden Costs of Control. American Economic Review 96(5), 1611-1630.
  • Friedrichsen, Jana and Dirk Engelmann. Who Cares for Social Image? (2014) Working Paper.
  • Gneezy, Uri and Aldo Rustichini (2000). A Fine is a Price. Journal of Legal Studies 29(1), 1-17.
  • Kosfeld, Michael , Akira Okada, and Arno Riedl (2009). Institution Formation in Public Goods Games. American Economic Review 99(4), 1335-1355.
  • Masclet, David, Charles Noussair, Steven Tucker, and Marie-Claire Villeval (2003). Monetary and Non-Monetary Punishment in the Voluntary Contribution Mechanism. American Economic Review 93(1), 366-380.
  • Nikiforakis, Nikos and Dirk Engelmann (2011). Altruistic Punishment and the Threat of Feuds. Journal of Economic Behavior and Organization 78(3), 319-332.
  • Oosterbeek, Hessel, Randolph Sloof, and Gijs van de Kuilen (2004). Cultural Differences in Ultimatum Game Experiments. Experimental Economics 7(2), 171-188.
  • Putterman, Louis, Jean-Robert Tyran, and Kenju Kamei (2011). Public Goods and Voting on Formal Sanction Schemes. Journal of Public Economics 95(9-10), 1213-1222.


The lecturer
Dirk Engelmann is Professor of Economics at the University of Mannheim and Director of the Experimental Economics Laboratory mLab. He received his doctoral degree in 2000 from Humboldt University Berlin. From 2003 to 2004 he was Assistant Professor at CERGE-EI (Prague). From 2004 to 2006 he was Reader, from 2006 to 2010 Professor of Economics at Royal Holloway, University of London. He is a member of the editorial board of the American Economic Review, associate editor of The Economic Journal and co-editor of the Journal of Economic Behavior and Organization.

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Tags: Economics, Summer School, PhD, Economic Theory, Game theory, Behavioral Economics, Experimental Economics
Published Dec. 16, 2013 12:10 PM - Last modified Sep. 12, 2017 2:16 PM