Authors: Christos A.Ioannou (University of Southampton), Shi Qi (Florida State University), Aldo Rustichini (University of Minnesota).
Paper number 1207
Abstract
Theories of social preferences assume that individuals have a utility over monetary outcome profiles, that depends on their and other player's payments. Behaviour in strategic interactions is explained as a Nash equilibrium of the game where final payoffs are paid in these utility units. These theories predict the estimated preferences to be independent of the subject's position in the game if in the experiment the allocation to a role is randomly determined, since subjects in each role have the same preferences ex-ante. We test and reject this hypothesis. We use the Quantal Response Equilibrium (QRE) of McKelvey and Palfrey (1995) to study first mover behaviour in the Trust game. As standard in this literature we assume that first mover beliefs are consistent with the observed probability distribution of actions of the second movers. On the other hand, second mover behaviour can be extrapolated without any a priori rational expectation assumptions. Our results show that the estimated preferences of first movers attach a significantly higher weight to their own payoff compared to the weight attached by second movers on their own payoff. This finding is inconsistent with the assumption that subjects approach a game with the same (that is, independent of the allocation to roles in the game) ex-ante preferences over monetary outcome profiles.