Morality and economic decisions:
An experimental approach
Behavioral and Experimental Economics (organized together with Steffen Kallbekken), which has brought interesting seminars, and discussions with seminar holders, to the Department.
I am grateful to my supervisors Geir Asheim, Karine Nyborg and Jo Thori Lind.
Geir for thorough and to-the-point comments and for always giving feedback amazingly quick regardless of where in the world he has been, Karine for being so inspiringly well- articulated both written and spoken, and Jo for friendly and good advice. I also want to thank Geir and Karine for giving me the opportunity to do this PHD, by including me in the “Self-image and sustainability” project. I wish to thank my coauthors during this period Kjell Arne Brekke, Jo Thori Lind, Karine Nyborg, Olof Johansson-Stenman, Lars-Olof Johansson and Henrik Sveds¨ater. Working closely with experienced researchers has given me valuable training. A special thanks to Kjell Arne Brekke for many humorous discussions on a wide variety of topics.
During the four years of my PHD, I have had the opportunity to visit two inspiring external research environments; the Department of Economics at the University of Not- tingham from January to June 2006, and the School of Economics at the Stockholm School of Economics from January to April 2008. I would like to thank the researchers affiliated with the Cedex-lab at the University of Nottingham, and especially Simon Gachter for taking his time to discuss my ideas with me. I would like to thank Tore Ellingsen and Magnus Johannesson at the Stockholm School of Economics for many good discussions during my stay there. Chapter 5 is the result of an idea I got and worked on during my stay in Stockholm, and the discussions with Tore and Magnus were valuable to the project.
I also want to thank the PHD students at the Department of Economics in Stockholm, in particular Erik Mohlin and Robert ¨Ostling for practical help conducting an experiment during the stay. I am grateful to Martin Sefton for organizing my stay at the University of Nottingham, and likewise to Tore Ellingsen for organizing my stay at the Stockholm School of Economics. Thanks both to the Department of Economics at the University of Nottingham and at the Stockholm School of Economics, for providing me with access to
support. I also in particular wish to thank three female economists who have become close friends during the years as a PHD student; Victoria Sparrman, Jenny Clarh¨all and Annamaria Fiore.
To my family and friends I obviously owe a great debt of gratitude. To my parents for unconditional love, support and encouragement, to my sisters for friendship, to my friends for not giving up on me and for keeping me in touch with the real world, and to my friends in Oslofjord Brass for giving me valuable distractions. Finally, a special thanks goes to my loving husband Eivind Farmen Finne, for your support, understanding and inspiration, and to our unborn child for the company through the last eight months, and for literally giving me kicks of inspiration when I needed it the most.
3 Playing with the Good Guys
A Public Good Game with Endogenous Group Formation 37 4 Guilt Aversion:
From disappointment or disapproval? 73
5 A dual-self model of social preferences 101
The topic of this thesis is morality and economic decisions. Before I motivate the topic further, it is necessary to define some of the terminology I use in this thesis.
The term social norm is used by many with somewhat different meanings. In this thesis I will follow the definition of a social norm used by Fehr and G¨achter (2000b): “A social norm is a behavior regularity that is based on a socially shared belief of how one ought to behave, which triggers the enforcement of the prescribed behavior by informal social sanctions” (Similar definitions are used by e.g. Ostrom (2000); Nyborg (2003);
Fehr and Fischbacher (2004); Krupka and Weber (2009)). I will understand informal social sanctions as sanctions, such as approval or disapproval, from other people with whom the individual interacts.
The individual may or may not agree with the social norm regarding what one ought to do in a given situation. I will call the individual’s own opinion on how one ought to behave, i.e. what the individual considers morally right behavior in a given situation, for the individual’s moral ideal, regardless of whether it is in accordance with a social norm or not. The individual may sanction him- or herself when violating the moral ideal, for instance through his or her consciousness.
Social norms and moral ideals thus have in common that they prescribe how one ought to behave in a given situation. Moral ideals refer to the individual’s own opinion, while social norms refer to a shared belief within a group. Morality, however, will be used here as a wider concept including both social norms and moral ideals. Studying morality and economic decisions, thus means studying the role of social norms and moral ideals in economic decisions.
Social norms influence behavior in a wide range of economic settings; there exist social norms for not free-riding on others, smoking behavior, for donating money to charity and for voting, to mention some. Take for instance smoking behavior; social norms can prescribe when, where and how much it is appropriate to smoke. In Norway a law forbidding smoking in public buildings seems to have contributed to a change in the view of considerate smoking behavior, and thus not only reduced smoking in public buildings, but also in private homes (Nyborg and Rege, 2003). The social norm for not free-riding on others, is an important social norm regulating behavior in many situations; cooperation in teams, work effort when effort is unobservable, and it can prevent insurance fraud, misuse of unemployment benefits, (Lindbeck, 1997), disability pensions (Rege et al., 2009) and other public transfers (Lindbeck et al., 1999). A change in such a social norm can give large and widespread implications. In order to understand and predict behavior in a wide variety of economic decisions, it is therefore crucial to know which social norms and moral ideals exists, understand how they develop, and how they influence behavior.
A public good is a good characterized by non-rivalry and non-excludability ((Kolstad, 2000). Non-rivalry means that one individual’s consumption of the good does not reduce the availability of the good for consumption by others, while non-excludability means that no one can be excluded from consuming the good. Although few goods are pure public goods, many goods have some properties in common with public goods. Take team work, for instance; the output of the teamwork is for everyone in the group to enjoy, regardless of who actually produced the output. The problem with teamwork, is the possibility of individuals on the team to free ride on the work of the others. And here lies the dilemma of public goods; the interest of the individual and the best interest of the team as a whole are in conflict; while it is in the best interest of each individual to free-ride on the other team members, it is in the overall interest for the team that all contribute. If one assumes,
to public goods.
In the public good game, subjects are divided into groups of 3 or more people. A common protocol is to let each subject receive an initial endowment which each subject can decide how much of to keep and how much of to give to a group account. An important property the public good game must fulfill in order to have the free-rider problem, is that each subject, irrespective of what the other group members do, always shall earn most money by keeping all the money, while the group as a whole earn most money if all subjects give all of their money to the group account. This is the case, when every unit of the endowment given to the group account is multiplied with a factor,f, where this factor is between 1 < f < n, and n is the number of subjects in each group. As an example, assume there are four subjects in each group (n = 4), and everything given to the group account is doubled (multiplied with the factor f = 2), before shared equally between the four group members. Then by keeping one unit, the individual earns 1 unit, while by giving one unit to the group account the individual, and the other group members, earn 1/2 unit (1∗ 24 = 12) each. The public good game has characteristics such that is resembles the conflict of free-riding in public goods, although it strictly speaking does not fulfil the requirements of the definition of a public good (since the amount given to the group account in the experiment is divided between the group members).
While the game-theoretic prediction is that the individual maximizing monetary pay- off will keep the entire endowment and not give anything to the group account, decades of experimental results show that subjects typically give around 40% to the group ac- count if the game is played once, while if the game is repeated, subjects typically give around 40% to the group account in the first period, while contributions fall as the game is repeated , with some variations depending on, for example, location (countries), sub- ject characteristics (age, education), protocol (anonymity) and the size of the endowment (Ledyard, 1995). However, when new periods are introduced after a pause, contributions again tend to again start high in the first period of the new periods, and again fall as the game is repeated, suggesting that the decay is not purely driven by subjects learning what is in their best interest as the game is repeated (Andreoni, 1988). High contribu- tions in early periods also could be due to strategic reasons. This has been investigated by comparing contribution behavior of subjects who remain in the same group through- out the repetitions of the game (partner design) with the contribution behavior when group compositions change between each group (stranger design). Although experimen-
tant insight from research on public good game experiments, is that agents differ in their contribution behavior, and that subjects can be divided into different behavioral types;
some are free-riders, always free-riding on others, and some unconditional altruist, always contributing high amounts. The largest group of subjects, however, are conditional co- operators; they contribute more to the public good the more the other group members contribute (Fischbacher et al., 2001; Fischbacher and G¨achter, 2006).
Based on the evidence of conditional cooperation in public good game experiments, Fehr and Fischbacher (2004) suggest that there exists a social norm prescribing that one ought to contribute to the public good as long as others do so as well. In chapter 2, I investigate the existence of a social norm of conditional cooperation by eliciting moral ideals in a public good game experiment. If conditional cooperation actually is a social norm, one should expect that a majority of subjects have a moral ideal consistent with such a social norm.
Chapter 2 leaves open the question of how to sustain cooperation in public good games over time. Experiments by Fehr and G¨achter (2000a) show that the existence of the possibility of being punished by other group members both increases contributions in the first period of a repeated game, and also leads to sustained cooperation throughout a repeated game. Subjects rightly expect to be punished if they contribute low amounts, and this threat in itself is enough to increase and sustain contributions.
The most common way of forming groups in public good game experiments, is by ran- dom and exogenous group formation. However, how groups are formed also has proven to effect the level and sustainability of contributions. When high contributors are ex- ogenously matched with other high contributors, and low contributors are matched with other low contributors, without subjects knowing how the groups are formed, groups consisting of high contributors manage to sustain contributions over time (G¨achter and Th¨oni, 2005; Gunnthorsdottir et al., 2007; Ones and Putterman, 2007). When subjects are allowed to vote on who they want to have in their group based on previous contribu- tion behavior (endogenous group formation), high contributors are preferred, and when groups are formed based on such preferences, groups consisting of high contributors do manage to sustain contributions (Page et al., 2005).
Chapter 3 investigates contribution levels and sustainability, both theoretically and empirically, using a new way of forming groups; subjects can choose between two differ- ent group types, and groups are formed randomly among subjects with the same choice of group type. Specifically, the choice of group type is between a group with a pre- commitment to donate an amount of money to charity, or the alternative group type where the same amount of money is given to each group member.
In addition to the public good game, the dictator game, first used by Forsythe et al.
(1994), is one of several experimental games used to study social preferences. Thedictator game is a simple game consisting of two players, a dictator and a receiver. The dictator receives an initial endowment, and can decide how to divide the endowment between himself and the receiver, while the receiver has a passive role and cannot influence the dictator’s choice. In dictator game experiments, the dictator can take home, in real money, the share of the endowment which he decides to keep, while the receiver can take home the share which the dictator has decided to give to him. The game-theoretic prediction is that the dictator will take the entire endowment to himself. However, numerous dictator game experiments show that the average dictator gives around 20% of the endowment to
gest that behavior can be influenced by the wish to avoid experiencing certain negative emotions. The theory of guilt aversion Battigalli and Dufwenberg (2007) is based on the idea that avoiding the negative emotion of guilt, influences behavior. While the theory of guilt aversion is focuses on guilt caused by not living up to the beliefs of others, chapter 4 focuses on how the fear of being disapproved of by others, can cause guilt, and thereby influence behavior.
While chapters 2, 3 and 4 in different ways concern social preferences, the last Chapter 5 is motivated by the relationship between social preferences and time preferences. There has not been much research on whether there is a link between social preferences and time preferences. In the literature on intertemporal choice, several models deal with preferences that are inconsistent over time. Time-inconsistent preferences does not refer to changes in taste over time, but rather that preferences depend on whether the present is involved or not. An individual might want to exercise twice a week, for instance Wednesdays and Fridays, except for on Wednesdays and Fridays. Or an individual might prefer 100 kroner today over 150 kroner in one week from now, but prefer 150 kroner in one year and one week from now over 100 kroner in one year from now, which is the reverse preference ordering even though the time delay between the two alternatives is the same. Inconsistent time-preferences (Strotz, 1955-1956), as modeled by e.g. Laibson (1997), is one way of capturing such preferences. Modeling economics agents as having self-control problems is another (Thaler and Shefrin, 1981; O’Donoghue and Rabin, 2001; Benabou and Pycia, 2002; Fudenberg and Levine, 2006). In chapter 5, a parallel is drawn between the self- control needed to set aside the urge of the present for what is best in the long run, and to the self-control needed in order to set aside the urge of the self for the consideration of others. Based on the dual self model of for time preferences (Fudenberg and Levine, 2006) a dual self model of social preferences is developed where the individual is modeled as consisting of a selfish doer and a other-regarding planner.
The method I use to study morality in economic decisions, is economic laboratory experiments. The next section will discuss the method of experimental economics and why it is appropriate for studying morality in economic decisions.
1.2 The experimental approach
2An economic laboratory experiment is a constructed setting with the purpose of studying
this is a great advantage of the experimental method. This is especially important for studying complex issues such as morality, and makes experimental economics an appro- priate method for studying morality. Although it may seem artificial to study morality in a laboratory setting where interactions are anonymous and often one-shot, if morality does shape behavior in this un-natural environment, it is difficult to argue that the same mechanisms are unimportant in the real world. Since subjects know they are taking part in an experiment, their behavior might be affected by this fact. It is important to be aware of that it usually is the comparison of behavior across different treatments that is of interest, not levels of a variable per se.
Experiments can be used for several purposes. Friedman and Sunder (1994) present five purposes of economic experiments; testing theory, discovering empirical regularities, comparing institutions, giving advice to policy makers, giving advice to consumers, voters and managers and pedagogical purposes. Of these purposes, testing economic theory is perceived as the most important. Theoretical models always are simplifications of the real world, which both is a strength and weakness; too simple models might not manage to capture the complexities of the real world, and therefore not manage to predict behavior correctly, while too complex models might not give clear predictions, or be difficult or even impossible to work with. As an experiment can be constructed to copy the theoretical model and its assumptions, it is a good arena for testing theory. If the theoretical model is not able to predict behavior in such a simplified setting, it probably will not do a good job on predicting behavior in the real world either. The experiments reported in chapter 2, 3 and 4 all are constructed to test theory. The experiments reported in chapter 1 and 5 are constructed to discover empirical regularities.
Economic experiments also have proven useful in testing out and comparing market designs and institutions. In stead of trying out a new market structure in the real world, which can turn out to be a very expensive test, using experiments is a much cheaper, but still useful method. Vernon Smith received the Nobel price in economics3 in 2002 for hav- ing developed the use of experiments as a method within economics, precisely for the use of experiments within the study of market design. In addition, experiments have become a pedagogical tool for teaching students about economic theory. Participating in experi- ments can be a useful and powerful way of demonstrating cases in which microeconomic theory works, and also where it doesn’t work.
According to Smith (1982) economic laboratory experiments can be considered real microeconomic systems where real decisions are made by real people if certain precepts are fulfilled. Smith postulates 5 precepts; non-satiation, salience, dominance, privacy and parallelism. The first three of these precepts deal with the reward medium. Non- satiation implies that the reward medium must fulfill monotonicity, in other words the reward medium must be such that subjects always want more of it. Saliency implies that the amount each subject receives of the reward medium is related to the decisions made be the subjects, and dominance insures that the size of the reward medium is such that it dominates other motivational factors. Conventions within experimental economics following from these precepts are to pay subjects money for participating in an experiment, that the payoff depends on the choices made by the subject in the experiment, that the payoffs are higher than the alternative cost of the subjects, and anonymity.
An important rule among experimental economists, it to not deceive subjects. In
3More precisely the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel
This is possible by constructing different treatments which are identical expect for the one variable of interest. By varying one variable between treatments, and comparing the behavior of subjects participating in different treatments, the effect of the one variable can be detected. If subjects are randomly assigned to participate in different treatments, there is, at the outset, no reason to believe that the behavior of one group should differ systematically from that of the other. The experiments reported in essay 5 are examples of experiments with between-subject designs. The within-subjects design, compares how the same individual behaves under different conditions. The experiment in essay 4 is an example of an experiment using this design.
Can experiments learn us anything about behavior in the real world? This is the question of the external validity of experiments. As long as the purpose of the experiment is to test theory, Smith (1982) argues it is sufficient that the experiments fulfills the first four precepts (non-satiation, salience, dominance and salience), in other words external validity is not a necessary condition. If economic theory shall predict behavior and if experiments shall test theory, the importance of external validity is small for the individual experiment, while of great importance for series of experiments. However, if an experiment shall form the basis of advice about real world issues, the importance of external validity cannot be questioned. Whether a single experiment, or a series of experiments fulfill external validity is an empirical question. Guala (2005) and Weber and Camerer (2006) suggest each their solution to increasing the generalizability of laboratory experiments.
Although both suggestions contain increasing the realism of lab experiments, they differ in where they lay the burden of proof. According to Guala, external validity cannot be taken for given, and in order to prove external validity, more experiments, preferably field experiments should function as mediators between the lab and the real world. Weber and Camerer on the other hand, claim that if any objections are raised towards a laboratory experiment concerning why it cannot generalize to the real world, a new lab experiment should be conducted adding that real world feature. Weber and Camerer therefore lay the burden of proof on proving that the experiment is not able to generalize to the real world.
1.3 A short walk through the thesis
conditional moral ideal, that is, what they consider morally right behavior conditional on the behavior of the other group members. In the third and last treatment, subjects do not report moral ideals, and this functions as a control treatment. After moral ideals are reported, subjects play a 10 period public good game.
The data from the experiment show that when subjects are asked (unconditionally) what they consider morally right behavior, a majority report that the moral ideal is to contribute the entire endowment to the public good, which is consistent with the ideal of maximizing the payoff of the group. However, when subjects are asked about what they consider morally right behavior conditional on the contribution behavior of the other group members, a majority report that the moral ideal is to contribute the amount which the other group members contribute on average.
Although there exists experimental evidence showing subjects are conditional cooper- ators, this chapter is, to my knowledge, the first attempt at measuring whether a social norm of conditional cooperation exists by eliciting moral ideals. It is not straightforward to measure the existence of social norms. While Fehr and Fischbacher (2004) suggest there exists a social norm of conditional cooperation based on behavioral evidence, the method used in this chapter, is to elicit moral ideals. If conditional cooperation actually is a social norm, one should expect that a majority of subjects have a moral ideal consistent with such a social norm.
The second aim of this chapter, is to look at the relation between reported moral ideals and behavior. In the unconditional treatment, there is a positive relation between reported moral ideals and contributions to the public good in the first period of the experiment.
In the conditional treatment, there is a positive relation between the reported conditional moral ideal corresponding to the other group members actual contribution behavior, and behavior. Although there is a positive relation between reported ideals and behavior both in the conditional and the unconditional treatment, the design of experiment does not allow any conclusion regarding the causal relationship between ideals and behavior.
Finally, a comparison of the contribution behavior of subjects who report moral ideals before playing the public good game, with subjects who do not, show that the contribu- tions of subjects in the former group, are less dependent on the contribution behavior of other group members.
1.3.2 Playing with the good guys: A public good game with endogenous group formation
Chapter 3 investigates, both theoretically and experimentally, whether cooperative sub- jects can manage to self-select into the same groups. The chapter considers the situation where each agent makes two choices; whether to be member of a group where an amount of money is pre-committed to be donated to a charity, and, once within a group, the amount contributed to a public good. In the theoretical model, we show that if the warm glow from contributing to the public good is correlated with the warm glow from con- tributing to a global public good such as a charity, then subjects who choose to be in a group where an amount is pre-committed to charity, will contribute higher amounts to the public good and manage to sustain cooperation over time, in comparison to subjects who choose to be in a group type without pre-commitment to charity. An experiment is designed to test the theoretical model. The experiment consists of 3 parts. The first part
all periods, and significantly higher from the second period onwards. Further, while contributions in blue groups show the regular decay as the game is repeated, red groups manage to sustain cooperation throughout the 10 periods of the second part. Subjects who in the third part of the experiment shift between in red and blue groups, contribute more when in red groups than in blue groups.
1.3.3 Guilt Aversion: from disappointment or disapproval?
The topic of this chapter is the enforcement of social norms through emotions. The possibility of receiving social sanctions such as monetary or symbolic punishment (Masclet et al., 2003), as well as the possibility of receiving a message expressing disapproval (Xiao and Hauser, 2009), already have been shown to influence behavior. But what happens when the individual cannot receive any kind of feedback from others? Does his belief about how they will react, and how his behavior will be evaluated by them, still influence behavior?
The theory of guilt aversion (Battigalli and Dufwenberg, 2007) assumes that behavior is influenced by how an individual believes others believe he will behave. By not living up to the beliefs of others, the individual will experience guilt caused by letting others down. In order to avoid guilt, the individual wishes to live up to how others believe he will behave. I suggest another cause of guilt; guilt from causing disapproval. I assume that an individual wishes to live up to how others believe he ought to behave, in order to avoid being disapproved of by others. In order to distinguish the concept of guilt from causing disapproval, from the concept of guilt used in the theory of guilt aversion, I will distinguish between guilt from causing disapproval and guilt from causing disappointment, where guilt from causing disappointment is understood as guilt caused by not living up how others believe one will behave, and thus disappointing others.
A variant of the dictator game is used to investigate the two causes of guilt. In the dictator game, the receivers, before knowing that they will be receivers in the experiment, are asked to guess what the dictators on average will give to their receivers, and to report what they personally consider is morally right behavior of a dictator. I interpret the receiver’s guess as his expectation to what his dictator will do (the receiver doesn’t know who will be his dictator, or anything about him, so his best guess of what a dictator will give, is what he believes dictators on average will do). I interpret the receiver’s
In the literature on intertemporal choice, several models have incorporated self-control as an explanation for time-inconsistent behavior (Thaler and Shefrin, 1981; O’Donoghue and Rabin, 2001; Benabou and Pycia, 2002; Fudenberg and Levine, 2006). A parallel can be drawn between the self-control required to overcome the temptations of the present for the long-run interest, and the temptations of selfishness over being other-regarding.
In this chapter, a dual-self model of social preferences is presented. The individual is assumed to consist of a selfish doer and an other-regarding planner. The doer represents the automatic processes in dual process models within social psychology, while the planner represents the controlled processes. While the doer decides on actions, the planner can alter the choices of the doer by performing costly self control. I assume the individual has a given resources pool which can be used to perform self-control, and that there is an increasing cost of performing self-control.
Assuming that selfishness is a trait by the doer, and not the planner, implies that selfish choices should be reached faster than other-regarding choices, since the automatic and instinctive processes are known to be fast compared to the controlled and deliberate processes represented by the planner. The assumption of increasing marginal cost of self-control implies that using up the resources of self-control should lead to more selfish choices.
Experiments which can test these two implications are reported in this chapter.
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Karen Evelyn Hauge
12.1 Introduction
Contributing to public goods is common. According to the vast literature on public good experiments, contributions lie around 40-60 percent in one-shot games and in the first round of repeated games, but fall as the experiment is repeated (Ledyard, 1995; Dawes and Thaler, 1988). Several studies from the last decade show that conditional coopera- tion is an important factor driving cooperative behavior (Fischbacher et al., 2001; Keser and van Winden, 2000; Fischbacher and G¨achter, 2008; Carpenter, 2004). Conditional cooperation implies that subjects contribute higher amounts when other group members contribute high amounts, while contribute low amounts when other group members con- tribute lower amounts. Fischbacher et al. (2001); Fischbacher and G¨achter (2008) show that subjects are heterogenous in social preferences. They classify subjects as either con- ditional cooperators, free riders or unconditional altruists. Experiments where subjects have the possibility of punishing group members based on their contribution behavior, show that although it is costly to punish, and although the subjects are anonymous to each other and will not meet again, subjects do punish each other, and the subjects who contribute less than the average of other group members receive most punishment (Fehr and G¨achter, 2000a,b, 2002).
Based on observations of conditional cooperation, and punishment behavior in public good game experiments, Fehr and Fischbacher (2004) suggest that cooperation in public good situations is based on a social norm of conditional cooperation: “This norm pre- scribes cooperation if the other group members also cooperate, whereas the defection of others is a legitimate excuse for individual defection”. Observed behavior might imply, but does not necessarily imply the existence of a social norm. In this essay, I will investi- gate further the existence of a social norm of conditional cooperation by relying both on what subjects consider morally right behavior and on observed behavior.
In the current experiment, subjects are asked to report what they consider morally right behavior in a public good game before playing the public good game. The exper- iment consist of three treatments. In the conditional treatment, subjects are allowed to condition their answer on the behavior of other group members, while subjects in the unconditional treatment are not. Since it is possible to give an unconditional answer to the conditional question, the answers from the conditional question gives a distribution between conditional and unconditional moral ideals in the public good game.
The framing of a situation can effect behavior. Liberman et al. (2004) find that subjects contribute more to the public good in an experiment called the Community Game compared to an experiment called the Wall Street Game. Answering a question regarding what is considered morally right behavior encourages subjects to reflect on, and thus give (more) attention to the moral aspect of the situation and might thereby influence contribution behavior. The essay thus raises three questions: 1) Do elicited
ideals and contribution behavior within each treatment, while the third question will be attended by comparing contribution behavior across treatments.
A social norm can be defined as a widely shared belief within a group concerning how individuals ought to behave in a given situation (Fehr and G¨achter, 2000b). A social norm of conditional cooperation, such as Fehr and Fischbacher (2004) suggest, is in line with Sugden (1984)’s principle of reciprocity. Sugden argues that behavioral norms are conditional on the behavior of others, and he says:“we need a principle that says, not that you must always contribute towards public goods, but that you must not take a free ride when other people are contributing.” Such a principle overcomes the unfairness of an unconditional norm. Whereas the term reciprocity in later literature has been associated with kindness and intentions2, Sugden’s definition of reciprocity is concerned with moral obligations being conditional on the behavior of others.
The behavior which an individual considers morally right in a given situation will be referred to as the individual’s moral ideal, which may or may not be the same as the social norm. Moral ideals such as “you shall contribute nothing” or “you shall contribute everything”, are examples of what I will call unconditional ideals, while Sugden’s principle of reciprocity is an example of what I will call a conditional moral ideal.
To my knowledge, few have elicited moral ideals directly in public good games. Marwell and Ames (1981) found that three out of four subjects thought that half or more of an endowment should be contributed to the public good, and more than one out of four thought that fair people would contribute the entire endowment. Marwell and Ames’s experiment only elicited unconditional moral ideals.
In the experiment, 2 of 3 subjects report conditional moral ideals which are increasing in the average contribution of other group members. In the treatment where only uncon- ditional ideals can be reported, 2 of 3 subjects report that the moral ideal is to contribute the entire endowment to the public good, which is consistent with maximizing the total payoff of the group. Although I cannot draw any conclusions regarding the causal rela- tionship between moral ideals and behavior, there is a positive relation between reported
prior to the public good experiment, subjects who did report moral ideals (either uncon- ditional or conditional) were less effected by other’s contributions. The results from the experiment thus support the existence of a social norm of conditional cooperation, and suggest that eliciting moral ideals make subjects rely less on the contribution behavior of others.
2.2 Experimental design
The experiment is based on a public good game. In the experiment subjects are divided into groups consisting of 4 people. Each subject receives an endowment of 10 units of the experimental currency (EC), where one unit is worth 2 NOK3. Each subject must choose how many units to keep and how many units to contribute to the public good. The sum given to the public good is doubled and divided equally between the four group members.
The payoff function of each subject thus is;
πi = 10−ci+ 0.5
4
X
j=1
cj (1)
where πi is the payoff of subject i, ci is the amount subject i contributes to the public good, and cj is the amount group memberj contributes to the public good. For each unit a subject keeps, he (and he only) will earn 1 EC (= 2 NOK). For each unit he contributes to the public good, he and everybody else in his group will earn 12 EC (= 1 NOK).
The basic game just described, is repeated 10 times and this is known by the subjects in advance. After each period all subjects are informed about the average amount given to the public game by the other members of the subject’s group, and his own payoff in that particular period. There is full anonymity in the experiment, such that none of the subjects at any point in time get to know who the other group members are, or the choices of any of the other participants in particular. In order to avoid strategic behavior, such as high early contributions for the purpose of increasing later contributions of group members or punishing low contributions with low contributions, each subject becomes member of a new group in every period, giving the game a stranger design. The total payoff each subject gets to bring home, is the sum of the payoff from each of the ten periods of the game.
The dominant strategy for an individual motivated solely by own material payoff is to contribute zero to the public good, as keeping one unit gives a payoff of 1 EC, while contributing one unit to the public good gives a payoff of 12 EC. However, the total payoff of the group is maximized when all subjects contribute their entire endowment to the public good.
310 EC corresponds to approximately 3.3 USD at the time of the experiment
the 10 period public good game described above.
In the conditional treatment, subjects are asked the slightly different question: “In your personal opinion, what is the ethically right thing for you to do? If the others in your group on average contribute the following rounded amounts, how many units ought you contribute to the group project?” The participants then fill out a table on the computer screen where the answers given to the ethical question is conditioned on average hypothetical levels of their group members’ contributions. For each of the hypothetical choices of others, answers must be given as an integer number between 0 and 10. After answering this question, subjects complete the 10 period public good game described above.
The third and last treatment does not include any question before the public good game, and serves as a control treatment.
After participating in the experiment, all subjects answer a questionnaire including questions about gender, age and field and length of education. Subjects in the control treatment in addition reported both conditional and unconditional moral ideals as part of this post-experiment questionnaire.
2.3 Results
The experiment is programmed in ztree (Fischbacher, 2007), and is conducted at Oeconlab at the University of Oslo in March and April 2007 and February and April 2008. In total 104 students participated in the experiment. The participants where recruited by email, posters, electronic posters and flyers at the University Campus. Invitations where sent by email to all bachelor students at the Faculty of Social Sciences, the Faculty of Humanities and the Faculty of Education. Posters, electronic posters and flyers were distributed in all faculties on the University Campus.
Each session lasted approximately one hour, and the average payoff was 294 NOK.
0.2.4.6.81Fraction
0 2 4 6 8 10
Reported ideals
Figure 1: Cumulative distribution of reported unconditional moral ideal
fell and ended up at 30% in period 10. The contributions in the control treatment thus are somewhat higher than similar experiments in the literature4.
2.3.1 Reported moral ideals
In the unconditional treatment, subjects are asked to report what they consider ethically right behavior in a public good game. In this treatment, regardless of whether a subject considers the ethically right behavior in a public good game to be conditional on the behavior of other subjects or not, they are forced to report an unconditional number. The cumulative distribution of the moral ideals reported in the unconditional treatment are shown in figure 1. As the figure illustrates, the most common answer is that is it ethically right to contribute the entire endowment to the public good. 67% of subject report this moral ideal, which is consistent with maximizing the total profit of the group. The second most common answer is that it is ethically right to contribute half the endowment. 17%
of subjects reported this moral ideal.
In the conditional treatment, subjects are asked to report what they consider morally right behavior in a public good game, conditional on the behavior of the other group members. This implies that subjects in this treatment are allowed both to report the same number regardless of the average behavior of others, or report numbers which depend on the behavior of others. In figure 2 the reported moral ideals in the conditional treatment are plotted towards possible average contribution levels of other group members, where the frequency of answers are illustrated by the size of the circles. Figure 2 shows a pattern between reported moral ideals and the average contribution by others, which resembles
4One of the sessions of the control treatment only had 8 subjects. The number of subjects in the session might have caused higher contributions in this particular session
0246Ideal contribution
0 2 4 6 8 10
Average contribution of others Frequency Fitted values
the letter z. From this pattern different types of moral ideals emerge. 35% of the subjects report a conditional moral ideal of contributing exactly the average of what the other group members contribute, 32% report a conditional moral ideal which is non-decreasing in the average of the other group members’ contributions, 15% report an unconditional ideal of contributing the entire endowment, while 5% report an unconditional ideal of contributing nothing.
2.3.2 Moral ideals and contribution behavior
A positive relation between reported ideals and contribution behavior, would give further support for the existence of a social norm of conditional cooperation. In the following, I first will look at the relation between reported ideals and contribution behavior in the unconditional treatment, then in the conditional treatment.
In the unconditional treatment, reported moral ideals might influence contributions in the first period and/or contributions in all periods. An OLS regression of contributions in the first period of the unconditional treatment is reported in table 1. As this table illustrates, the moral ideals reported in the unconditional treatment have a positive and significant coefficient. The first specification, with the reported moral ideals as the only right hand side variable, shows that all else equal, a one unit increase in the reported
Table 1: Regression of contributions in unconditional treatment, period 1
(1) (2)
Reported moral ideal 0.445** 1.041**
(2.06) (2.19)
Female -2.344
(-1.45)
Age -0.596
(-1.32)
Economics 1.861
(1.06) Length of education 1.638**
(2.36)
Constant 2.522 -2.604
(1.33) (-0.59)
N 40 20
Note: *, **, and *** denotes significance at the 10%, 5%, and 1% levels. t-statistics in parenthesis. 20 missing observations of background variables
Table 2: Regression of contributions in unconditional treatment, averaged across 10 peri- ods
(1) (2)
Reported moral ideal 0.324* 0.490 (1.69) (0.97)
Female -2.551
(-1.49)
Age -0.292
(-0.61)
Economics -0.265
(-0.14) Length of education 0.488
(0.66)
Constant 2.428 1.846
(1.45) (0.40)
N 40 20
Note: *, **, and *** denotes significance at the 10%, 5%, and 1% levels. t-statistics in parenthesis. 20 missing observations of background variables
we here are interested in measuring the effect of how the reported moral ideals effect contribution behavior in the ten periods of the experiment, and the moral ideal is only reported at one time during the experiment (before the public good game experiment), we are interested in the effect of a variable which is fixed over time (the reported moral ideal) on a variable which varies over time. A random effects model is appropriate for studying this, as a fixed effects model would absorb the effect of the fixed variable into the fixed effect of the individual. A random effects panel data regression therefore can check whether the reported moral ideals influence contribution behavior in the unconditional treatment over the 10 periods, and table 3 reports the results. Specification (1) shows that the moral ideal does not have a significant effect on contributions. Since the group compositions change between each period of the experiment, the data might be correlated within each session. As long as the within-session unobservables are uncorrelated with the regressors, OLS estimators of a random effects model are consistent and only the variance of the regression parameters need to be adjusted (Cameron and Trivedi, 2005).
In specification (2) the data are clustered on session level, which corrects for the possibility of dependant data within a session. The results of this specification are similar to the results of specification (1).
In the conditional treatment, moral ideals are reported for 10 specified average con- tribution levels of the other group members. As contribution decisions are made simulta- neously by all group members, the average contribution level of the other group members is learned straight after each contribution decision is made. From period 2 onwards, we therefore know the feedback each individual received concerning the average contribu- tion of the other group members in the previous period, what the individual reported as morally ideal behavior for this specific level of the average contribution level of the other group members, and what the individual contributed in the following period. Since the group composition changes between each period, the contribution behavior of the indi- vidual in a given period can not be understood as a punishment or reward on the other group members for previous behavior. However, the feedback each individual receives can
Table 3: Regression of contributions in unconditional treatment
(1) (2)
Reported moral norm 0.429 0.311***
(0.84) (3.92)
AvOthers 1 0.0418 0.0497***
(0.47) (2.89)
Female -2.596
(-1.49)
Age -0.263
(-0.54)
Economics -0.491
(-0.26) Length of education 0.370
(0.49)
Period 7 -1.046 -1.559***
(-1.30) (-3.02)
Period 8 -1.418* -0.954*
(-1.74) (-1.95)
Period 9 -1.552* -1.557***
(-1.89) (-10561.20)
Period 10 -1.895** -1.653***
(-2.30) (-6.37)
Constant 2.859 3.011***
(0.59) (5.04)
Period dummies YES YES
Cluster Session NO YES
Within-R2 0.0914 0.0695
Between-R2 0.218 0.0680
Overall-R2 0.173 0.0685
Model chi2 19.12 .
N 180 360
Note: *, **, and *** denotes significance at the 10%, 5%, and 1% levels. z-values in parenthesis. Hausman test of (1) compared to fixed effects model: χ2 = 1.04. Control variables are omitted due to missing observations in one session.
Table 4: Regression of contributions in conditional treatment
(1) (2)
Ideal—AvOthers 1 0.321*** 0.321**
(3.47) (2.31)
AvOthers 1 -0.115 -0.115**
(-1.25) (-2.00)
Female 0.524 0.524
(0.61) (0.82)
Age 0.135 0.135
(0.58) (0.69) Economics -1.938** -1.938***
(-2.17) (-6.35) Length of education 0.170 0.170
(0.41) (0.31)
Period 7 -1.406** -1.406***
(-2.31) (-5.63)
Period 8 -1.095* -1.095***
(-1.77) (-3.41) Period 9 -1.670*** -1.670***
(-2.71) (-5.60) Period 10 -2.337*** -2.337***
(-3.75) (-4.67)
Constant 5.141*** 5.141***
(5.48) (52.06)
Period dummies YES YES
Cluster Session NO YES
Within-R2 0.0925 0.0925
Between-R2 0.398 0.398
Overall-R2 0.265 0.265
Model chi2 54.14 .
N 360 360
Note: *, **, and *** denotes significance at the 10%, 5%, and 1% levels. z-values in parenthesis. Hausman test of (3) compared to fixed effects model: χ2 = 15.38
average contribution of others into a moral ideal. I regard this function as fixed over time, that is, the function itself is assumed not to depend on the contribution behavior of others. In order to study the effect of this fixed function on behavior, a random effects model is appropriate. Table 4 illustrates the results of the following random effects panel data regression:
xi,t =α+β1x¯j,t−1+β2ideali¯xj,t−1+δ0zi,t+γtperiod+i,t
where xi,t is the contribution of individual i in periodt, ¯xj,t−1 is the average contribution of j wherei 6=j, ideali¯xi,t−1 is the ideal of individual i for ¯xj,t−1, zi,t is a vector of control variables, periodis a vector of dummy variable for each period, and i,t is the error term.
As the results of the panel data regressions reported in specification (1) in table 2 illustrate, idealxi¯j,t−1 has a positive and significant effect on contributions. All else equal, a one unit increase in ideali¯xj,t−1, causes a increase in the contribution to the public good by approximately 0.3 units. In specification (2) the data is clustered on each session as explained above for the unconditional treatment, and the results in this specification remain similar.
2.3.3 The effect of eliciting moral ideals
When subjects are asked to report their moral ideals, they are encouraged to reflect on, and thus give (more) attention to the moral aspect of the situation, which might influence contribution behavior. In the following, each of the two treatments where moral ideals are elicited will be compared to the control treatment. First the treatments will be compared by means of test statistics by comparing contributions period by period, and contributions averaged across the ten periods. Finally, the same panel data regression will be conducted for each of the three treatments and the results will be compared.
The upper panel of figure 3 illustrates contributions to the public good period by period for each treatment. As the figure illustrates, average contributions are lower in the control compared to in the other two treatments in all 10 periods. The lower panel of figure 3, shows test statistics of period by period comparisons of each of the uncondi- tional treatment and the conditional treatment, to the control. The use of t-tests might be questionable here as the t-test assumes independent observations within and between treatments, and that the variables being tested are normally distributed (ref). Test statistics from a clustered t-test can control for the dependency of observations within each session. Contributions to public good game experiments usually have a two-peaked distribution, at 0% and 100% of the endowment, which also is the case in all three treat- ments of this experiment 5. A test which does not depend on the assumption of normal
5A Shapiro-Wilk test rejects the null hypothesis that contributions are normally distributed in all three of the treatments
Figure 3: Contributions and test statistics, by treatment and period
2468Contribution
1 2 3 4 5 6 7 8 9 10
Control Unconditional tr Conditional tr
258t− and z−values
1 2 3 4 5 6 7 8 9 10
Period
t1 t2 MW1 MW2
Sign level of 0.05
distribution, is the Mann-Whitney test. This test instead assumes that the two variables that are to be compared have a similar form, which is an reasonable assumption in this case. The lower panel of figure 3 reports test statistics from regular t-tests, clustered t-tests and Mann-Whitney tests. The three test statistics give the same conclusions; in no period are contributions significantly different between the unconditional treatment and the control, or between the conditional treatment and the control.
However, the difference between individual contributions averaged across all periods in the unconditional treatment and the control is significant according to a t-test (p-value 0.0347) and a Mann Whitney test (p-value 0.0110). Likewise, the difference between individual contributions averaged across all periods between the conditional treatment and the control is also significant according to both a t-test (p-value 0.0249) and a Mann Whitney test (p-value 0.0103).
Table 5 report the results of equal panel data regression on contributions to the public good for each of the three treatments respectively. Table 5 specification (1) and (2) report the results from the control treatments, and shows that the the lagged average contribution of group members (AvOthers 1) has a positive and significant effect on contributions.
On average, increasing the lagged average contribution of other group members by one unit increases the contribution in the next period by approximately 0.3 units. Of the other variables, the dummy variables for three of the four last periods are negative and significant, indicating the typical end-game effect mentioned in the introduction (Ledyard, 1995).
Table 5, specification (3) and (4), illustrates the results of the same regression for the unconditional treatment. Here, the coefficient for AvOthers 1 is 0.04, in comparison to 0.3 in the control, and only significant at the 5% level in the clustered specification.
However, the end-game effect is apparent. Specification (5) and (6) illustrate the results from the same regression for the conditional treatment. Also for this treatment, the coefficient of AvOthers 1 is much smaller than in the control. Here it is 0.097 and only significant at the 10% level in the specification with clustering (specification (6)). The end-game effect is apparent also in the conditional treatment. From the comparison of each of the treatments with the control, it therefore seems as reporting moral ideals, both when allowed to condition the answers on the behavior of others and when not allowed to, makes subjects depend less on the contribution behavior of other subjects.
An alternative way of comparing contribution behavior across the treatments, is to compare whether subjects in different treatments differ in how many times they contribute zero to the public good, and how many times they contribute 10 or 9 to the public good. In the control treatment, subjects on average contribute 9 or 10 2.3 times, while the same number in the unconditional treatment is 2.65 times, and in the conditional treatment 3.4 times. The difference between the control treatment and the conditional treatment is significant according to a two-sided t-test (p-value 0.0004) and a Mann-
Table 5: Regression comparing three treatments
(1) (2) (3) (4) (5) (6)
AvOthers 1 0.317*** 0.315** 0.0421 0.0493*** 0.128* 0.123**
(3.83) (2.24) (0.48) (3.22) (1.77) (2.23)
Female 0.194 -2.839* 0.472
(0.16) (-1.67) (0.43)
Age -0.0473 -0.221 0.230
(-0.49) (-0.46) (0.79)
Economics -3.170** -0.0947 -1.785
(-2.10) (-0.05) (-1.58)
Length of education 0.177 0.0230 0.182
(0.43) (0.04) (0.35)
Period 7 -1.473** -1.475*** -1.045 -1.559*** -1.346** -1.348***
(-2.43) (-12.45) (-1.30) (-3.01) (-2.26) (-5.19) Period 8 -1.281** -1.285 -1.418* -0.955** -0.952 -0.959***
(-2.07) (-1.34) (-1.74) (-1.97) (-1.57) (-2.98) Period 9 -1.158* -1.162*** -1.551* -1.557*** -1.509** -1.515***
(-1.86) (-14.03) (-1.89) (-679.48) (-2.50) (-6.22) Period 10 -2.309*** -2.313*** -1.895** -1.654*** -2.292*** -2.301***
(-3.72) (-7.86) (-2.29) (-6.47) (-3.76) (-6.21) Constant 4.916*** 4.015* 6.727*** 5.617*** 5.688*** 5.222***
(4.09) (1.91) (4.88) (29.59) (5.42) (16.23)
Treatment Control Control Uncond Uncond Cond Cond
Period dummies YES YES YES YES YES YES
Cluster Session NO YES NO YES NO YES
Within-R2 0.192 0.192 0.0914 0.0696 0.108 0.108
Between-R2 0.269 0.118 0.180 0.0279 0.109 0.112
Overall-R2 0.243 0.124 0.148 0.0268 0.108 0.0284
Model chi2 50.27 . 18.49 . 41.93 .
N 216 216 180 360 360 360
Note: *, **, and *** denotes significance at the 10%, 5%, and 1% levels. z-values in parenthesis.
Whitney test (p-value 0.0002). However, the difference between the control treatment and the unconditional treatment is not significant according to a two-sided t-test (p-value 0.3038) or a Mann-Whitney test (p-value 0.3687). In the control treatment, subjects on average contribute 0 2.3 times, while subjects in the unconditional treatment and the conditional treatment contribute 0 2.7 and 2.9 times respectively. The difference between the control treatment and the conditional treatment also here is significant according to a two-sided t-test (p-value 0.0155) and the Mann-Whitney test (0.0333), while the difference is not significant between the control and the unconditional treatment according to a two- sided t-test (p-value 0.1725) or the Mann-Whitney test (p-value 0.9368). Perhaps it is somewhat surprising that subjects in the treatments where moral ideals are reported, contribute 0 more often than in the control treatment, but on the other hand, it does support the results from the previous paragraph that subjects vary their contributions less in the treatments reporting moral ideals.
2.4 Conclusion
Conditional cooperation is regarded an empirical regularity after decades of public good game experiments (Fischbacher et al., 2001; Keser and van Winden, 2000; Heldt, 2005;
Fischbacher and G¨achter, 2008; Carpenter, 2004). The vast evidence of contributions increasing in the contributions of group members, and of individuals performing costly punishment on subjects who contribute less than the group average, led Fehr and Fis- chbacher (2004) to suggest that there exists a social norm, that is a widely shared belief for how individual group members ought to behave, of conditional cooperation. Fehr and Fischbacher’s suggestion of the existence of a social norm of conditional cooperation is based on observed contribution and punishment behavior, not on the individual’s beliefs of how they ought to behave. This paper uses a different method of measuring whether there exists a social norm of conditional cooperation; subjects are asked to report what they consider morally ideal behavior in a public good game experiment.
In the current experiment, subjects report what they consider morally ideal behavior in a public good game prior to playing the public good game. In the unconditional treatment subjects are asked to report what they consider morally ideal behavior, while in the conditional treatment subjects are asked to report what they consider morally ideal behavior contingent on the behavior of the other group members. It is not straight forward to measure what individuals believe regarding how they ought to behave. When participating in an experiment, answers to the question of how one ought to behave, might be confounded by how the subject wants to appear to others in general or the experimenter in particular, and/or the answers might be confounded by the subject wanting to appear consistent. The latter point might either confound the reported moral ideals or the contribution behavior in the experiment. Although reporting moral ideals in a public
unconditional ideals can be reported, 2 of 3 subjects report that the moral ideal is to contribute the entire endowment to the public good, which is consistent with the goal of maximizing the total payoff of the group.
Fischbacher et al. (2001) classify 50% of their subjects in a public good game experi- ment as conditional cooperators, and 30% as free riders. Fischbacher and G¨achter (2008) classify 55% as conditional cooperators, 23% as free riders and 2% as unconditional co- operators. Even though it is not unproblematic to compare behavior between different experiments, it is worth noting that the pattern of contribution types is somewhat similar to the pattern of moral ideals reported in this experiment. In comparison to the results of the current experiment, there are fewer subjects who behave as unconditional cooperators in Fischbacher and G¨achter (2008) than report unconditional ideals of full cooperation in this experiment, fewer who behave as conditional cooperators than subjects who re- port conditional moral ideals, while there are more subjects who behave as free riders in both Fischbacher et al. (2001) and Fischbacher and G¨achter (2008) than report uncon- ditional ideals of free-riding in this experiment. These differences might again suggest that individuals don’t quite fulfill their ideal, but due to difficulties in comparisons across experiments, no clear conclusion can be drawn on this matter.
The reported moral ideals together with the positive relation between reported ideals and contribution behavior, give support to the existence of a widely shared view that appropriate behavior is to cooperate if others cooperate, whereas defection is a legitimate excuse for individual defection. The results from this experiment thus support the ex- istence of a social norm of conditional cooperation. Further, the experiment has shown that answering a question regarding what is considered morally right behavior makes contribution behavior depend less on the contribution behavior of other group members.
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