Information Asymmetry and Exposure Effects in Dictator Games

Abstract

This study introduces a theoretical model of inequality aversion that can also be used in an environment with information asymmetries. The model is based on the non-paternalistic approach in which, the utility function incorporates the utility of other people as perceived by a decision maker. This can explain the different behavior of people under a very common environment with incomplete information. I extend the model by adding shame aversion as an additional driver for apparently altruistic behavior. The threat of shame is induced by different levels of exposure of either one’s own actions or identity to third-party observers. I also experimentally test predictions of the model using a simple environment of a dictator’s game. The experimental design aims to remove additional confounding behavioral effects present in the previous literature. The results suggest that even exposure to only one person, who is not affected by the agent’s decision, results in significantly higher amounts sent to recipients. The analysis also shows that agents who believe they can conceal their own actions in front of a less-informed counterpart exploit this lack of transparency for their monetary benefit.