Other-regarding Preferences Research Articles

Performance pay and dynamic social preferences

This paper analyzes implications of dynamic social preferences in a simple multiagent moral hazard model. The basic assumption is that social (other-regarding) preferences, such as shame and compassion, is a function of previously offered incentive schemes. I show that it may be optimal to offer incentives based on relative performance evaluation (RPE) in both periods in the dynamic (two-period) setting, even if team incentives, i.e. joint performance evaluation (JPE) is optimal in the static setting, and vice versa. The model also suggests that dynamic preferences promote the use of JPE or RPE at the expense of independent performance evaluation (IPE) if the principal cannot use IPE to boost social preferences.

Externality or sustainability economics?

In an effort to develop “sustainability economics” Baumgärtner and Quaas (2010) neglect the central concept of environmental economics–“environmental externality”. This note proposes a possible connection between the concepts of environmental externality and sustainability. In addition, attention is asked for other aspects of “sustainability economics”, namely the distinction weak/strong sustainability, spatial sustainability and sustainable trade, distinctive sustainability policy, and the ideas of early “sustainability economists”. I argue that both sustainability and externalities reflect a systems perspective and propose that effective sustainability solutions require that more attention is given to system feedbacks, notably other-regarding preferences and social interactions, and energy and environmental rebound. The case of climate change and policy is used to illustrate particular statements. As a conclusion, a list of 20 insights and suggestions for research is offered.

Donor payoffs and other-regarding preferences in cotton-top tamarins (Saguinus oedipus)

Helping others at no cost to oneself is a simple way to demonstrate other-regarding preferences. Yet, primates exhibit mixed results for other-regarding preferences: chimpanzees and tamarins do not show these effects, whereas capuchin monkeys and marmosets preferentially give food to others. One factor of relevance to this no-cost food donation is the payoff to the donor. Though donors always receive the same payoffs regardless of their choice, previous work varies in whether they receive either a food reward or no food reward. Here, I tested cotton-top tamarins in a preferential giving task. Subjects could choose from two tools, one of which delivered food to a partner in an adjacent cage and the other of which delivered food to an empty cage. Thus, subjects could preferentially give or withhold food from a partner. I varied whether subjects received food payoffs, whether a partner was present or absent, and whether the partner was a non-cagemate or the subject's mate. Results showed that the subjects' overall motivation to pull either tool declined when they did not receive any food. Additionally, they did not preferentially donate or withhold food, regardless of their own payoff or their relationship with the partner. Thus, cotton-top tamarins do not take advantage of cost-free food giving, either when they might gain in the future (mates) or when they have no opportunity for future interactions (non-cagemates).

OTHER-REGARDING UZAWA PREFERENCES AND LIVING STANDARD CATCH-UP

This paper provides a new rationale for Uzawa preferences based on social choice; instead of positing that poor people are more patient because they are poor, it posits that poor people should be more patient if they wish their living standards to catch up with richer people. To provide a setting for this new rationale, the present paper studies the socially optimal choice of living standards over time by social planners for countries that, from low levels of total factor productivity (TFP), experience a gradual catch-up of their TFP level with that of the leader country. In the TFP catch-up scenario, the socially optimal choice of consumption and saving based on time additive preferences leads to no catch-up of living standards. To generate living standard catch-up we propose other-regarding Uzawa preferences, in which the rate of time preference is influenced by the gap in living standards between follower country and leader country. This other-regarding specification is consistent with recent findings emphasized in behavioural economics. The other-regarding Uzawa preferences form is illustrated quantitatively by simulating a model of the world economy.

Redistributive policies with heterogeneous social preferences of voters

There is growing evidence on the roles of fairness and other-regarding preferences as fundamental human motives. Call voters with fair preferences, as in Fehr and Schmidt (1999), fair-voters. By contrast, traditional political economy models are based on selfish-voters who derive utility solely from “own” payoff. In a general equilibrium model with endogenous labor supply, a mixture of fair and selfish voters choose optimal policy through majority voting. First, we show that majority voting produces a unique winner in pairwise contests over feasible policies (the Condorcet winner). Second, we show that a preference for greater fairness leads to greater redistribution. An increase in the number of fair voters can also lead to greater redistribution. Third, we show that in economies where the majority are selfish-voters, the decisive policy could be chosen by fair-voters, and vice versa. Fourth, while choosing labor supply, even fair voters behave exactly like selfish voters. We show how this apparently inconsistent behavior in different domains (voting and labor supply) can be rationalized within the model.

The influence of kin relationship and reciprocal context on chimpanzees' other-regarding preferences

We investigated the evolutionary origin of other-regarding preferences, one of the strong underlying motivations for altruism, in the chimpanzee, Pan troglodytes. Although altruism is expected theoretically to be kin biased and frequent in a reciprocal context, few experimental studies to date have specifically tested these hypotheses from the viewpoint of proximate mechanisms. We examined the other-regarding preferences of individuals in mother–offspring pairs and in nonkin adult pairs in both reciprocal and nonreciprocal contexts. Based on the previously established choice paradigm with mutually or selfishly beneficial options, we developed a novel task using buttons. In experiment 1, chimpanzee participants involving three mother–offspring pairs were offered two options: delivering food rewards to their partner and themselves or only to themselves. We compared their choices between partner-present and partner-absent conditions. In experiment 2, we developed a reciprocal context in which the two participants alternately chose the two options. In contrast to the theoretical predictions, the chimpanzees did not show any prosocial tendencies even between mother and offspring or in a reciprocal context. We propose that the experimental set-up which prevented direct interactions between the participants might have influenced these results. In conclusion, the present study suggests that voluntary and/or strategic other-rewarding behaviour arose in humans after divergence from the common ancestor of humans and chimpanzees.

Relative Performance or Team Evaluation? Optimal Contracts for Other-Regarding Agents

This paper derives optimal incentive contracts for agents with other-regarding preferences. It offers a behavioral explanation for the empirically observed lack of relative performance evaluation. We analyze a principal-multi agent model and assume that agents are inequity averse or status seeking. We show that team contracts can be optimal even if the agents' performance measures are positively correlated such that relative performance evaluation would be optimal with purely self-interested agents and even though relative performance evaluation provides additional incentives to provide effort if agents have other-regarding preferences. Furthermore, optimal incentive contracts for other-regarding agents can be low-powered as compared to contracts for purely self-interested agents.

Human Nature: A Comparative Overview

AbstractThe differences and similarities between human and non-human animals are constantly up for discussion and an overview is needed. Four central fields of behaviour related to (1) complex symbolic activities, (2) tool making and tool use, (3) culture and social transmission and (4) sociality and morality, are surveyed and comparatively analysed to identify particular human characteristics. Data from a broad range of sciences are brought together to introduce light and shade into the picture. The differences found inside field four are especially striking. Humans are “ultra-social”. Evolution seems to have favoured a more collaborative kind of sociality in our species, and features like other-regarding preferences, large scale cooperation with non-kin, and strangers as well as third-party sanctions, appear to be derived properties of humans that have evolved after Homo and Pan diverged.

Self Selection Does Not Increase Other-Regarding Preferences Among Adult Laboratory Subjects, But Student Subjects May Be More Self-Regarding than Adults

We use a sequential prisoner's dilemma game to measure the other-regarding behavior in samples from three related populations in the upper Midwest of the United States: 100 college students, 94 non-student adults from the community surrounding the college and 1,069 adult trainee truckers in a residential training program. Both of the first two groups were recruited according to procedures commonly used in experimental economics (i.e., via e-mail and bulletin-board advertisements) and therefore subjects self-selected into the experiment. Because the structure of their training program reduced the opportunity cost of participating dramatically, 91% of the solicited trainees participated in the third group, so there was little scope for self-selection in this sample. We find no differences in the elicited other-regarding preferences between the self-selected adults and the adult trainees, suggesting that selection into this type of experiment is unlikely to bias inferences with respect to non-student adult subjects. We also test (and reject) the more specific hypothesis that approval-seeking subjects are the ones most likely to select into experiments. At the same time, we find a large difference between the self-selected students and the self-selected adults from the surrounding community: the students appear considerably less pro-social. Regression results controlling for demographic factors confirm these basic findings.

A Within-Subject Analysis of Other-Regarding Preferences

We assess the predictive power of a model of other-regarding preferences, inequality aversion, using a within-subjects design. We run four different experiments (ultimatum game, dictator game, sequential prisoner's dilemma and public-good game) with the same sample of subjects. From the data we estimate parameters of aversion to disadvantageous and advantageous inequality. We then use these estimates to test several hypotheses across games. Our data show that results from within-subject tests can differ markedly from aggregate-level analysis. The inequality-aversion model has predictive power at the aggregate level but performs less well at the individual level.

Other-regarding preference and the evolutionary prisoner’s dilemma on complex networks

Prevailing models of the evolutionary prisoner’s game on networks always assume that agents are pursuing their own profit maximization. But the results from experimental games show that many agents have other-regarding preference. In this paper, we study the emergence of cooperation from the prisoner’s dilemma game on complex networks while some agents exhibit other-regarding preference such as inequality aversion, envious and guilty emotions. Contrary to common ideas, the simulation results show that the existence of inequality aversion agents does not promote cooperation emergence on a BA (Barabási and Albert) scale-free network in most situations. If the defection attraction is big and agents exhibit strong preference for inequality aversion, the frequency of cooperators will be lower than in situations where no inequality aversion agents exist. In some cases, the existence of the inequality agents will even induce the frequency of cooperators to zero, a feature which is not observed in previous research on the prisoner’s dilemma game when the underlying interaction topology is a BA scale-free network. This means that if an agent cares about equality too much, it will be difficult for cooperation to emerge and the frequency of cooperators will be low on BA networks. The research on the effect of envy or guilty emotions on the emergence of cooperation in the prisoner’s dilemma game on BA networks obtains similar results, though some differences exist. However, simulation results on a WS (Watts and Strogatz) small-world network display another scenario. If agents care about the inequality of agents very much, the WS network favors cooperation emergence in the prisoners’ dilemma game when other-regarding agents exist. If the agent weight on other-regarding is lowered, the cooperation frequencies emerging on a WS network are not much different from those in situations without other-regarding agents, although the frequency of cooperators is lower than those of the situation without other-regarding preference agents sometimes. All the simulation results imply that inequality aversion and its variations can have important effects on cooperation emergence in the prisoner’s dilemma game, and different network topologies have different effects on cooperation emergence in the prisoner’s dilemma game played on complex networks.

The Behavioral Implications of Aggregation and Delay on Budget Approval Decisions

An experiment with three treatments is used to evaluate the social efficiency of budgeting protocols induced by other-regarding preferences. In disaggregated superiors receive three individual proposals in iterated fashion, and must decide whether to accept each project without knowledge of the forthcoming proposals by the subordinate. In aggregated three projects are bundled together, and subordinates submit an aggregate proposal that is intended to cover the cost of all the projects combined. Superiors can accept all of the projects to which the proposal pertains, or none of them. In delayed subordinates submit individual proposals as in disaggregated, but superiors delay making a decision on any of them until they receive all three proposals. The results indicate that superiors are slightly more demanding in aggregated than in the other two treatments, and subordinates submit lower proposals for high-cost projects. However, superiors are not so demanding that the social benefit of aggregation is completely undone: the likelihood of project acceptance under aggregated is significantly greater than under disaggregated and delayed, especially for the highest cost projects. It therefore appears that the aggregation of budget requests into a single proposal to cover all costs is somewhat efficacious in increasing project acceptance. Interestingly, only when the superior is forced to consider an aggregated budget is social welfare improved. In this sense, aggregation may be thought of as a substitute for a commitment to view only the total budget proposed, and not its components. More generally our results provide a rationale for restricting the level of information in the evaluation of subordinates when superiors cannot commit to how they will use the information.

Other-Regarding Preferences and Altruistic Punishment: A Darwinian Perspective

Altruistic punishment - the punishment of norm violators at one's own cost without material benefit - is frequently observed in experimental economics, field studies and in people's everyday life. The existence of this ostensibly irrational behavior is often linked to other-regarding preferences in humans, which relate a person's decision to her social environment. Economists have begun incorporating other-regarding preferences in their utility frameworks to better capture empirical evidence. While these theoretical additions seem intuitive, their evolutionary foundation is poorly documented and the origin of altruistic punishment remains puzzling. Using a new approach, that closely integrates empirical results from a public goods experiment with punishment together with an evolutionary agent-based simulation model, enables us to identify the underlying key mechanism of this puzzling behavior. We design the agent-based model by means of a limited set of behavioral patterns observed in the experimental data. We validate our results by comparing our quantitative predictions of the punishment behavior and its effect on the level of cooperation with the corresponding empirical observations. Unlike descriptive theories, our approach provides a broad explanatory solution for the emergence and existence of altruistic punishment behavior in public goods game experiments: Altruistic punishment emerges spontaneously from a population of agents who are initially non-punishers, if variants of inequality or inequity aversion are the predominant preference sets. In particular we find, that a weaker, asymmetric variant of inequity aversion quantitatively explains the level of punishment observed in contemporary experiments: Our evolutionary model shows that disadvantageous inequity aversion cause altruistic punishment behavior to evolve to a level that precisely matches the empirical observations in public goods experiments.

Capuchin monkeys (Cebus apella) are sensitive to others’ reward: an experimental analysis of food-choice for conspecifics

The issue whether non-human primates have other-regarding preference and/or inequity aversion has been under debate. We investigated whether tufted capuchin monkeys are sensitive to others' reward in various experimental food sharing settings. Two monkeys faced each other. The operator monkey chose one of two food containers placed between the participants, each containing a food item for him/herself and another for the recipient. The recipient passively received either high- or low-value food depending on the operator's choice, whereas the operator obtained the same food regardless of his/her choice. The recipients were either the highest- or lowest-ranking member of the group, and the operators were middle-ranking. In Experiment 1, the operators chose the high-value food for the subordinate recipient more frequently than when there was no recipient, whereas they were indifferent in their choice for the dominant. This differentiated behavior could have been because the dominant recipient frequently ate the low-value food. In Experiment 2, we increased the difference in the value of the two food items so that both recipients would reject the low-value food. The results were the same as in Experiment 1. In Experiment 3, we placed an opaque screen in front of the recipient to examine effects of visual contact between the participants. The operators' food choice generally shifted toward providing the low-value food for the recipient. These results suggest that capuchins are clearly sensitive to others' reward and that they show other-regarding preference or a form of inequity aversion depending upon the recipients and the presence of visual contact.

Is Dishonesty Contagious? An Experiment

When an individual believes that peers are predominantly untruthful in a given situation, is he/she more likely to be untruthful in that situation? We study this question in a deception experiment patterned after Gneezy (2005), finding evidence that dishonesty is indeed contagious. We argue that existing theories of other-regarding preferences are unlikely to explain this result.

Other-Regarding Preferences, Spousal Disability and Happiness: Evidence from German Couples

This paper considers the impact of adverse health shocks that hit an individual’s partner on subjective well-being. Using data on couples from the German Socio-Economic Panel for the years 1984 to 2006, I compare the losses in well-being caused by own and spousal disability using panel-regressions. I find that women and to a lesser extent men are harmed by spousal disability which is consistent with the existence of other-regarding preferences within couples. The magnitude of effects suggests that spousal disability is about one quarter to one half as harmful as individual disability with larger effects being found for women.

Do the Selfish Mimic Cooperators? Experimental Evidence from Finitely-Repeated Labor Markets

Experimental studies have consistently shown that cooperative outcomes can emerge even in finitely repeated games. Such outcomes are justified by existing reputation building models, which suggest that cooperative outcomes can be sustained if some subjects have other-regarding preferences. While the existence of other-regarding preferences is typically used to justify experimental outcomes, we are unaware of empirical studies that explicitly examine the interaction between cooperators (those with other-regarding preferences) and selfish subjects in sustaining cooperation. In this paper, we classify subjects as either selfish or cooperative using simple social preference games and then test for behavioral differences between the two types in a finitely-repeated labor market with unenforceable worker effort. Theory predicts, and our data confirms, that (1) selfish players mimic the actions of cooperators when trading partners can track the individual reputation of past partners and (2) selfish and cooperative types act differently when individual reputations cannot be tracked.

Generous actors, selfish actions: markets with other-regarding preferences

This paper points out that classical competitive outcomes arise in two different market environments even if agents have non-classical preferences. Consumers with separable, other-regarding preferences behave as if they have classical preferences in competitive equilibrium. These outcomes need not be efficient, but under plausible conditions will be efficient following a redistribution of income. In simple double-auction environments competitive outcomes arise under a wide range of assumptions on preferences even without assuming separability. I discuss the importance of the domain of definition of preferences and how the preferences present in the economy influence the performance of the trading institution.

Team production with inequity-averse agents

This paper analyzes the efficiency of team production when risk-neutral agents exhibit other-regarding preferences. It is shown that full efficiency can be sustained as an equilibrium of a budget-balancing mechanism that punishes some randomly chosen agents if output falls short of the efficient level but distributes output equally otherwise. The result depends on agents being sufficiently inequity-averse.

Do the Selfish Mimic Cooperators? Experimental Evidence from Finitely-Repeated Labor Markets

Experimental studies have consistently shown that cooperative outcomes can emerge even in finitely repeated games. Such outcomes are justified by existing reputation building models, which suggest that cooperative outcomes can be sustained if some subjects have other-regarding preferences. While the existence of other-regarding preferences is typically used to justify experimental outcomes, we are unaware of empirical studies that explicitly examine the interaction between cooperators (those with other-regarding preferences) and selfish subjects in sustaining cooperation. In this paper, we classify subjects as either selfish or cooperative using simple social preference games and then test for behavioral differences between the two types in a finitely-repeated labor market with unenforceable worker effort. Theory predicts, and our data confirms, that (1) selfish players mimic the actions of cooperators when trading partners can track the individual reputation of past partners and (2) selfish and cooperative types act differently when individual reputations cannot be tracked.