Lecture 11: Social and Non-materialistic Preferences

In real world, there are more factors than simple pay-off. This is the lecture which justifies those factors.

Reciprocity: give and take
Trust: belief of goodness for someone

Interpretations:
1. Trust and positive reciprocity: You can trust me because I reward you
2. Trust and negative reciprocity: I trust because I punish you if you do not reward
3. Trust and reputation: You can trust me because my valuable reputation is at stake
4. Trust and reliability: You can trust me because I can optimize in this way in the game

Example 1: the Dictator game
Players: a dictator and a recipient
Rules: the dictator distributes 100 unit of money(M) to the recipient
Outcomes: distribute M, receive M
Payoffs:100-M, M

Surprisingly, most of the class choose 50!

Example 2: the trust game
Players: 1 and 2
Rules: if 1 chooses T, its payoff of (1, 2)=(20,20). If 1 chooses T and 2 R, its payoff is (25,25), if 2 does N, it is (15,30)
Outcomes: NT, (T,N),(T,R)
Payoffs(20,20),(15,30),(25,25)

In pure incentive theory, only (15,30) can be choose. But considering positive reciprocity, (25,25) can be chosen.

Example3:the mini-ultimatum game
Players: 1 and 2
Rules: if 1 chooses F, its payoff of (1, 2)=(20,20). If 1 chooses U and 2 chooses A, its payoff is (80,20), if 2 chooses P, it is (0,0)
Outcomes: F, (U,A),(U,P)
Payoffs(50,50),(80,20),(0,0)

Example4:Involuntary trust and ultimatum games
Players: 1 and 2
Rules:1 already chose T, 2 can choose N or R
Outcomes: N,R
Payoffs(15,30),(25,25)

Players: 1 and 2
Rules:1 already chose T, 2 can choose A or P(=punish)
Outcomes: A,P
Payoffs(80,20),(0,0)

Fairness is one of factors to influence our decision.

Models(fairminded)

ui=mi－ψi*f(lmj-mil)

-mi is agent i’s net monetary payoff and j is not i
-ψi is non-negative parameter
-f is an increasing function

But it can not fully explain the reason of player 2’s action or popularity of 50:50.
Extensions of the fairness models are
*worthy audience
*signaling
*both

Example: Esteem for fairmindedness
???

In resent biology and psychology, human’s preference is hot issue. But reciprocity is one of biggest solution.