The Psychology of Social Preferences: Understanding Intrinsic and Instrumental Reciprocity

1. SS200: Social preferencesColin F. Camerer, Caltech • Self-interest is a useful, common assumption…but! • Skepticism that any social preference other than self-interest is fragile: “when self-interest and ethical values with wide verbal allegiance are in conflict, much of the time, most if the time in fact, self-interest theory…will win.” (Stigler) • Useful distinction: • Intrinsic reciprocity (one-shot) • Instrumental reciprocity (long-run gain) • Why important?

2. The big challenge • Challenge is to have a general, precise, accurate, psychologically plausible model of social preferences • Distributional (inequity-aversion. Fehr-Schmidt, Bolton-Ockenfels, Charness-Rabin) • Preference-based (Cox, Friedman, Gjerstad GEB 07) based on emotion & status • Reciprocal (Rabin et al) • “Signaling” or self-image (Levine, Bernheim, Rotemberg)

3. Ultimatum game • Proposer offers division of $10; responder accepts or rejects • Theories: • Rejections express social preferences (care about $, envy, guilt) • “Unnatural habitat” (adapted to repeated games, one-shot is Stroop) • Variants: • Dictator games (same responsibility?) • Demographics (generally weak) • Stakes– rejected $ goes up, % goes down • Repetition etc.– weak • Low information about “pie” size lower offers (and “pleading poverty ”) • Proposer competition offers give most to responder • Two-stage games responders (weakly) accept lower offers because proposers have an “excuse” (intentions matter)

4. Game-ending ultimatum rejections are like “disadvantageous counterproposals” in longer games

5. US data (Roth et al 1991)

6. Ultimatum vs dictator “games” (Forsythe et al 1994) NB: Dictator games are “weak situations”, more variance

7. Low, medium, high stakes (Slonim-Roth 1998)

8. Do players learn to accept low offers at high stakes? No. Would learn a lot more from the strategy method (acc/rej for all offers)

9. Special subject pools & conditions • Neural evidence (ACC, DLPFC, insula for low offers; difference predicts rejection r=.4) • Autistics offer less (don’t expect rejection) • Adults learn to take “objective stance” • Cutting-off-nose effect (Monkeys reject unequal pay, Brosnan and De Waal, Science 9/18/03; F capuchins will refuse exchange for low payoff if others get high payoff) • Small-scale societies • Variation in mean offer (some offer very little) • Fair offers correlated with “market integration” and “cooperativeness”

10. “Market” games (9-proposer competition)

11. Intentions matter (Falk et al 99) (cf. law e.g. manslaughter vs murder)

12. Sanfey et al fMRI study (Sci 13 March ’03)

13. “ask the brain”: within (L) and pooled (R) correlations of insula and DLPFC activity & rejection

14. Feeling: This is your brain on unfairness

15. Pain circuitry

21. TMS to R DLPFC increases unfair offer acceptances (Knoch+ Sci 06) • Suggests DLPFC implements override of fairness-$ calculator

22. Ultimatum offer experimental sites

23. The Machiguenga independent families cash cropping slash & burn gathered foods fishing hunting

24. African pastoralists (Kenya)

25. Whale Hunters of Lamalera, Indonesia High levels of cooperation among hunters of whales, sharks, dolphins and rays. Protein for carbs trade with inlanders Researcher: Mike Alvard

26. Ultimatum offers across societies (mean shaded, mode is largest circle…)

28. Fair offers correlate with market integration (top), cooperativeness in everyday life (bottom)

29. Ultimatum offers of children who failed/passed false belief test

30. Autistics v normals (adults top, children bottom)

31. Israeli subject (autistic?) complaining post-experiment (Zamir, 2000)

32. Unnatural habit hypothesis… • "Although subjects fully understand the rules of the game and its payoff structure, their behavior is influenced by an unconscious perception that the situation they are facing is part of a much more extended game of similar real-life interactions…We believe that it is practically impossible to create laboratory conditions that would cancel out this effect and induce subjects to act as if they were facing an anonymous one-shot [ultimatum game]." (Winter & Zamir, 1997)

33. Testing theories: New ideas • How to separate preference vs unnatural habitat views? • Role of emotions • Look for cross-game regularity in measured preferences • Learning (…or is it temporary satiation?) • fMRI and ACC Stroop interpretations • Rationalization and “moral wriggle room” (Weber, Dana, Kang Ec Theory in press) • State ALT A=(6,1) vs B=(5,5) or State DUMB A=(6,1) vs B=(5,1) • Do you want to know the state? • Important in politics (deniability)

34. Theories • Sobel general form • Key: What are weights λij? • Fehr-Schmidt: <0 for envy, >0 for guilt • Bolton-Ockenfels, similar but xi,, deviation of share from equality (bad blow: (5,5) vs (8,2). reject gives 10%. Should never reject, reject (8,2) 40% of the time) • Charness-Rabin: (Rawlsitarian) • Levine: αiis i altruism, βiwt on j

35. Theories, 2: Intentions • Intentions seem to matter (Rabin) • Chicken: (D,C) and (C,D) are Nash • but if fairness is large, (D,D) and (C,C) are fairness equilibria (thin line between love (C,C) and hate (D,D)) • Cf. gift of the magi (O. Henry), locket and comb

36. Fehr-Gachter JEP 2000 paper • Opportunism: “Self-interest seeking with guile…” (Wmson). Guile is the interesting part? • Alternative: • Reciprocity– repay in kind-- + self-interest • Evidence: • PD cooperation + expectations • Ultimatum (negative), trust (positive)

37. Fehr-Gachter JEP 2000 paper, III • Public goods with punishment • N=4. Social return 1.6, private (MPR) .4 • Punish x units at cost of (1/3)x • Punishment by “police” works! (pp 516-517 ABE) • Contracts in gift-exchange w/ moral hazard • Prepay a wage. Worker chooses effort • Positive wage-effort relation: Reciprocity or correlated types (Healy) • Crowding out by complete contracts • Wage competition is resisted by firms– don’t hire cheapest worker (p 524)

38. Fehr setup: Firms offer w Firms earn 10e-w Workers choose e Workers earn w-c(e) No reputations (cf. PJ Healy) Moral hazard in contracting: Theory and experimental evidence

39. Competition does not drive wages down…firms choose high wage offer workers & expect reciprocity

40. Long-run effects? • One field experiment (Gneezy-List 07 Emetrica) • Students hired to enter book data (clerical, boring) • Higher productivity “wears off” after 3 hours • Their conclusion: Lab does not always generalize well to the field

41. Reciprocity in the field: Effects of final-offer arbitration of police-city wage bargaining on “clearances” and arrests (Mas, 07)

42. Effect of deviation from average of p–c offers (discontinuity at zero)

43. Sobel JEcLit 2004 review • Intrinsic reciprocity (one-shot) vs instrumental reciprocity (repeated games) • Theories • Topics: • Charity • Holdup problem (Bewley “fanciful”) • Crowding out (Benabou-Tirole, Gneezy-Rustichini) • Markets (“markets make people look selfish”)

44. Public goods with and without cooperation

45. Responder competition: Self-interested behavior can emerge from structure (Guth et al, Fehr et al)

46. Markets may make people appear selfish (e.g. Sobel 07) • Apparent conflict between social prefs in small bargaining games & competitive equilibrium in large (n>3) markets. Why? • Call markets • “Replacement” assumption (prefer to trade if I can make money; i.e., would rather me get rich than somebody else) •  Competitive volume & prices result • Why? Not trading just costs money and can’t help/harm others • Key point: Competitive markets tell us nothing about social preference in general • Beware a logical mistake self-interest  comp. outcomes • comp. outcomes --/self-interest

47. Benabou-Tirole REStud 03 • Workers infer task difficulty or skill from wage offer (“overjustification”, “self-perception”, “looking glass self”) • Worker exerts effort 0,1, cost is c in [c*,c*] • Worker gets signal σ correlated with c • Success pays V to agent, W to firm • Θ is probability of success given effort • Firm offers bonus b • Worker exerts effort c(σ,b)<Θ(V+b) works if σ>σ*(b) • Prop 1: In equilibrium • Bonus is short-term reinforcer: b1<b2σ*(b1)>σ*(b2) • Rewards are bad news: b1<b2E[c|σ1,b1] < E[c|σ2,b2] • Empirical leverage: Negative effect occurs only if firm knows more about task difficulty or worker skill than the worker knows

48. 2. Crowding out • Do extrinsic ($) incentives crowd out intrinsic motivation? • Gneezy-Rustichini (QJE) day care study: After fine imposed, late arrivals went up • Do puzzles for $ or no-$. After $ removed, no-$ group does more puzzles (Deci et al) • Female tennis players: Play for fun as kids… …later on tour, quit after getting appearance fee • Q: Is it a “strike” or permanent decrease in incentive?

49. Evolutionary arguments • Can nonselfish preferences evolve? • Individual selection: “Green beard” hypothesis, depends on observability, detection of GB, & inability to fake it • Group selection: Cooperative genes can arise from gene-culture coevolution (roughly, genes selected for “socializability”, then socialized for cooperativeness)

50. Evolution • Direct kin-based vs indirect reciprocity • Evidence from 25 chimps in Uganda (Langergraber+ PNAS 07) • Related (white) cooperate more than unrelated (grey) for maternal sibs only (top) but not for paternal sibs (bottom)