Abstract
The paper contributes to the literature on other-regarding preferences challenging the narrow self-interest assumption. Experimental evidence confirms that the same individuals might express different otherregarding preferences in different situations or contexts. The structure of their interaction, their relative positions in it might trigger different behavioral patterns. In this paper we propose a model of multi-level other-regarding preferences assuming that different levels are actualized depending on the context in which an individual has to take her decision. We analyze the experimental trust game letting the players have multi-level preferences. Under certain parameterization and asymmetric information assumption, we show that the share given up by the leader of the game in favor of the follower is strictly monotonically increasing with altruism of the former. It is also demonstrated that utilitarian social welfare is increasing with the leader’s altruism if the players are not extremely risk-averse. In the case when information for both players is incomplete, a separating equilibrium exists allowing to distinguish between leaders with different other-regarding preferences.
Highlights
For more than two decades economists have been challenging the classical assumption of selfish preferences
With the introduction of a quite intuitive form of beliefs used by the Responder, we show that a separating equilibrium exists
It can be shown that the problem and the results extend naturally to the continuous case where the altruism and reciprocity parameters take any values between pure selfishness/non-reciprocity and pure altruism/reciprocity
Summary
For more than two decades economists have been challenging the classical assumption of selfish preferences. Under certain parameter specification of the players’ preferences and asymmetric information assumption, we show that the share given up by the Proposer in favor of the Responder at the first stage of the game is strictly monotonically increasing with the Proposer’s altruism.9 This result carries an immediate policy implication: if overall surplus is the variable to be maximized and it is determined by the first-mover’s choice, the most altruistic candidate should be assigned the first-mover’s role whatever the probability distribution of the second-mover’s “types” and whatever the degree of the individuals’ risk-aversion is.
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