Measuring lying aversion

We introduce a new method for measuring the decision to lie in experiments. In the game, the decision to lie increases own payment independent of the counterpart's decision, but potentially at a cost for the counterpart. We identify at the individual level the decision to lie, and measure how individuals react to different incentives to lie. Furthermore we investigate how lying behavior changes over time. Our method allows us to classify people into types, including those who never lie, those who always lie, and those who react to incentives to lie. We suggest this method as a useful instrument for examining factors that influence the decision to lie.     

Mean-dispersion preferences and constant absolute uncertainty aversion

We axiomatize, in an Anscombe–Aumann framework, the class of preferences that admit a representation of the form V(f)=μ−ρ(d)$V(f)=\mu -\rho (d)$, where μ is the mean utility of the act f with respect to a given probability, d   is the vector of state-by-state utility deviations from the mean, and ρ(d)$\rho (d)$ is a measure of (aversion to) dispersion that corresponds to an uncertainty premium. The key feature of these mean-dispersion   preferences is that they exhibit constant absolute uncertainty aversion. This class includes many well-known models of preferences from the literature on ambiguity. We show what properties of the dispersion function ρ(⋅)$\rho (\cdot )$ correspond to known models, to probabilistic sophistication, and to some new notions of uncertainty aversion.     

Marginal risk aversion and preferences in a betting market

An individual's behavioural attitudes toward variance and non-symmetry in the payoff distributions of pari-mutuel gambles are empirically examined using the von Neumann - Morgenstern expected utility of wealth paradigm. Preferences over payoff distributions for a representative bettor are estimated from observed payoffs at a greyhound racetrack. The results indicate that the representative bettor exhibits increasing absolute risk aversion and, given that the representative bettor is locally non-satiated with regard to wealth, exhibits preference for variance and aversion to positive skewness in the payoff distributions of the gambles examined.     

On the correspondence between multivariate risk aversion and risk aversion with state-dependent preferences

This paper establishes the correspondence between multivariate risk aversion and risk aversion with state-dependent preferences. It shows that the prerequisite for comparability of risk aversion in the multivariate case, namely, identical ordinal preferences on the commodity space, corresponds to identical, properly defined, reference sets in the case of state-dependent preferences. For comparable decision makers the condition that the utility function of one is a concave transformation of that of the other on the commodity space corresponds to the condition that the expected utility of one is a concave transformation of that of the other on the reference set.     

A note on risk aversion and multivariate,state-dependent preferences

Within the multivariate, state-dependent utility framework, a full insurance specification of risk aversion places severe restrictions on preferences. In particular, the von Neumann-Morgenstern utility function must be separable, and state-dependent only for consumption of the insured good.     

Real estate and relative risk aversion with generalized recursive preferences

This paper investigates how real estate wealth affects the household’s attitude toward risk, and derives the closed-form expressions for risk aversion with generalized recursive preferences. We find three channels through which real estate wealth affects risk aversion, and these channels are absent in the traditional measure of relative risk aversion as in Arrow (1965) and Pratt (1964). First, illiquidity and fluctuations in real estate value increase consumption risk, thereby increasing risk aversion. Second, real estate as an asset provides a cushion for absorbing negative shocks to households, reducing risk aversion. Third, an increase in real estate prices lowers the profit of the firm that uses real estate as a factor of production, induces a decline in the real wage, and causes a rise in consumption risk. This channel increases risk aversion. We study how these channels as a whole determine relative risk aversion using a basic real business cycle model with generalized recursive preferences and compare the results with the case of expected utility preferences. Finally, we explore the implications of the firm’s and the household’s real estate holdings and illiquidity of real estate on the risk premiums for equity and real estate.     

Jointly radial and translation homothetic preferences: generalized constant risk aversion

Summary. The paper identifies the structural restrictions on preferences required for them to exhibit both translation homotheticity in particular direction and radial homotheticity. The results are illustrated by an application to an asset allocation problem in the absence of riskless asset.Received: 22 January 2002, Revised: 31 March 2003, JEL Classification Numbers: D8, D2. Correspondence to: Robert G. Chambers     

Social preferences and moral biases

An emerging consensus in economics is that three motives are at work in strategic decisions: distributive preferences, reciprocal preferences and self-interest. An important obstacle, however, has been moral biases: distortions created by self-interest can obscure our measures of social preferences. This paper describes a simple experiment to address this. We compare the decisions of implicated “stakeholders” with those of impartial “spectators.” We find that stakeholders are less inclined to respond to the generosity of others than are spectators. We also clarify a result in previous research [e.g., Offerman, T., 2002. Hurting hurts more than helping helps. European Economic Review 46, 1423–1437] that stakeholders punish unkindness more than they reward kindness. We find that this asymmetry in reciprocity has two sources: an asymmetry in the underlying preference that even impartial spectators display and a moral bias; stakeholders punish more and reward less than spectators. In sum, we find that all three motives have important and significant effects on final allocations.     

Social identity and preferences over redistribution

We design an experiment to study the effects of social identity on preferences over redistribution. The experiment highlights the trade-off between social identity concerns and maximization of monetary payoffs. Subjects belonging to two distinct natural groups are randomly assigned gross incomes and vote over alternative redistributive tax regimes, where the regime is chosen by majority rule. We find that a significant subset of the subjects systematically deviate from monetary payoff maximization towards the tax rate that benefits their group when the monetary cost of doing so is not too high. These deviations cannot be explained by efficiency concerns, inequality aversion, reciprocity, social learning or conformity. Finally, we show that behavior in the lab helps explain the relationship between reported income and stated preferences over redistribution observed in survey data.     

Parental background and other-regarding preferences in children

Other-regarding preferences are important for establishing and maintaining cooperative outcomes. In this paper, we study how the formation of other-regarding preferences during childhood is related to parental background. Our subjects, aged 4–12 years, are classified into other-regarding types based on simple binary-choice dictator games. The main finding is that the children of parents with low education are less altruistic, more selfish, and more likely to be weakly spiteful. This link is robust to controlling for a rich set of children’s characteristics and class fixed effects. It also stands out against the overall development of preferences, as we find children to become more altruistic, less selfish, and less likely to be weakly spiteful with increasing age. The results, supported by a complementary analysis of World Values Survey data, suggest an important role of socialization in the formation of other-regarding preferences.     

Social preferences? Google Answers!

We analyse pricing, effort and tipping decisions at the online service ‘Google Answers’. Users set a price for the answer to their question ex ante, and they can additionally tip the researcher who provided the answer ex post.A positive wage-effort relationship is frequently found in laboratory gift-exchange games, yet field evidence for reciprocity in two-stage settings (wage, effort) is mixed. Our field data confirms lab findings for the three-stage design (wage, effort, bonus). Tipping is motivated by reciprocity, but also by reputation concerns among frequent users. Moreover, researchers seem to adjust their effort based on the user's previous tipping behaviour. An efficient sorting takes place when sufficient tip history is available.In addition, we analyse how tipping is adopted when the behavioural default is not to tip and suggest estimates for reciprocal and selfish (strategic and myopic) user types.     

Inequality aversion and risk aversion

This note shows that for two social welfare functions which are inequality averse with respect to certainty equivalents, if one is more inequality averse for certainty equivalents than the other, the household preference induced by optimally allocating aggregate bundles according to this social welfare function is more risk averse than the other. We present examples showing that this comparative static can be reversed if absolute inequality aversion is dropped. We show that the utilitarian rule always induces the least risk averse household preference among all social welfare functions (this corresponds to the sum of certainty equivalents).     

Social preferences and public economics: Mechanism design when social preferences depend on incentives

Social preferences such as altruism, reciprocity, intrinsic motivation and a desire to uphold ethical norms are essential to good government, often facilitating socially desirable allocations that would be unattainable by incentives that appeal solely to self-interest. But experimental and other evidence indicates that conventional economic incentives and social preferences may be either complements or substitutes, explicit incentives crowding in or crowding out social preferences. We investigate the design of optimal incentives to contribute to a public good under these effects would make either more or less use of explicit incentives, by comparison to a naive planner who assumes they are absent.     

Social dilemmas,time preferences and technology adoption in a commons problem

Agents interacting on a body of water choose between technologies to catch fish. One is harmless to the resource, as it allows full recovery; the other yields high immediate catches, but low(er) future catches. Strategic interaction in one ‘objective’ resource game may induce several ‘subjective’ games in the class of social dilemmas. Which unique ‘subjective’ game is actually played depends crucially on how the agents discount their future payoffs. We examine equilibrium behavior and its consequences on sustainability of the common-pool resource system under exponential and hyperbolic discounting. A sufficient degree of patience on behalf of the agents may lead to equilibrium behavior averting exhaustion of the resource, though full restraint (both agents choosing the ecologically or environmentally sound technology) is not necessarily achieved. Furthermore, if the degree of patience between agents is sufficiently dissimilar, the more patient is exploited by the less patient one in equilibrium. We demonstrate the generalizability of our approach developed throughout the paper. We provide recommendations to reduce the enormous complexity surrounding the general cases.     

Gender differences in lying

Aversion to lying has been consistently observed in sender-receiver games. Women have demonstrated greater aversion to lying for a small monetary benefit in these games than men. We test the robustness of this gender difference in a sender-receiver game with larger stakes. We find no difference in lying by gender.     

Intertemporal substitution, risk aversion and ambiguity aversion

Summary. This paper axiomatizes a form of recursive utility on consumption processes that permits a role for ambiguity as well as risk. The model has two prominent special cases: (i) the recursive model of risk preference due to Kreps and Porteus [18]; and (ii) an intertemporal version of multiple-priors utility due to Epstein and Schneider [8]. The generalization presented here permits a three-way separation of intertemporal substitution, risk aversion and ambiguity aversion.Received: 5 August 2003, Revised: 12 March 2004, JEL Classification Numbers: D80, D81, D90.I am grateful to Larry Epstein for his guidance and invaluable advice, and to a referee for helpful comments and suggestions.     

Ambiguity aversion and trade

What is the effect of ambiguity aversion on trade? Although in a Bewley??s model, ambiguity aversion always leads to less trade; in other models, this is not always true. However, we show that if the endowments are unambiguous, then more ambiguity aversion implies less trade for a very general class of preferences. The reduction in trade caused by ambiguity aversion can be as severe as to lead to no trade. In an economy with MEU decision makers, we show that if the aggregate endowment is unanimously unambiguous, then every Pareto optima allocation is also unambiguous. We also characterize the situation in which every unanimously unambiguous allocation is Pareto optimal. Finally, we show how our results can be used to explain the home-bias effect. As a useful result for our methods, we also obtain an additivity theorem for CEU and MEU decision makers that does not require comonotonicity.     

Social preferences and voting: An exploration using a novel preference revealing mechanism

Public referenda are frequently used to determine the provision of public goods. As public programs have distributional consequences, a compelling question is what impact, if any, do social preferences have on voting behavior. This paper explores this issue using laboratory experiments wherein voting outcomes lead to a known distribution of net benefits across participants. Preferences are elicited using a novel Random Price Voting Mechanism (RPVM), which is more efficient in eliciting preferences than a dichotomous choice referendum but gives consistent results. Results suggest that social preferences, in particular a social efficiency motive, lead to economically meaningful deviations from selfish voting choices and increase the likelihood that welfare-enhancing programs are implemented.