Academic journal article Economic Inquiry

Beliefs about Other-Regarding Preferences in a Sequential Public Goods Game

Academic journal article Economic Inquiry

Beliefs about Other-Regarding Preferences in a Sequential Public Goods Game

Article excerpt

I. INTRODUCTION

Over the years, experimental evidence has soundly rejected the hypothesis that subjects play the selfish, subgame perfect equilibrium in a large class of sequential games, including the ultimatum game (e.g., Forsythe et al., 1994), the centipede game (e.g., McKelvey and Palfrey, 1992), and the finitely repeated prisoner's dilemma (e.g., Cooper et al., 1996). This failure of selfishness extends to public good provision, as shown by Croson (1998) and Fehr and Gachter (2000). The fact that subjects do not play as if they are selfish raises two issues. One relates to how a subject's concern for others, either negative or positive, impacts their strategy choice. The other relates to how a subject's beliefs about opponents' concern for others impact their play. Although the first issue has received quite a bit of attention, the second has received relatively little. (1) In this article, we present the results of an experiment that can identify players' beliefs about subsequent players' other-regarding attitudes in a sequential public good provision game.

There are several reasons why identifying players' beliefs about their opponents' other-regarding preferences in a public good provision game is important. First, and as already mentioned, because players optimally respond to their beliefs, these beliefs affect play. Second, the sequential public good provision setting is interesting in its own right, because it arises in studies of both fund-raising and team production. How participants believe their opponents feel about them may affect the ability of groups to reach goals successfully. Third, beliefs about other-regarding preferences provide a clue as to what form these preferences take and allow us to distinguish between competing theories.

The game itself is a four-player sequential game with a provision point, such that the public good is provided if the provision point is met. (2) We focus attention on the first mover in the sequential game, because beliefs about subsequent play matter the most at the beginning. We also focus attention on a particular preference pattern, inequality aversion, which captures the notion that players prefer more equitable allocations (see, for example, Fehr and Schmidt, 1999). (3) We are able to determine whether player 1 believes that subsequent players are inequality averse by changing whether contributions are refunded when the provision point is not met. (4) If player 1 believes that subsequent players are inequality averse, they should contribute more in the full-refund setting than in the no-refund setting. The data are inconsistent with this pattern, and we reject the hypothesis that player 1 believes that subsequent players are inequality averse. We also reject the hypothesis that player 1 is concerned with security. Player 1's behavior is consistent with a belief that subsequent players have one of four traits: They are either altruistic, spiteful, engaged in reciprocity, or concerned with security. (5)

These results fit well with existing literature in that they help rule out what other-regarding preferences players attribute to their opponents. It has been well established that proposers make higher offers in the ultimatum game than in the dictator game, presumably because they believe that low offers will be rejected in the ultimatum game. Rejections can arise from either spite, reciprocity, or inequality aversion (but not altruism or a concern for security), so the comparison of offers in the two games yields that the proposer believes that the responder fits one of these three patterns. Our experiment suggests that beliefs in inequality aversion do not drive behavior, leaving beliefs in spite and beliefs in negative reciprocity as the stronger contenders.

The article is organized as follows. Section II describes the setting and the predictions for beliefs in inequality aversion. Section III discusses the experiment, and section IV presents the results. …

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