The dictator game is a popular experimental instrument in social psychology and economics,a derivative of the ultimatum game. The term "game" is a misnomer because it captures a decision by a single player: to send money to another or not. The results – most players choose to send money – evidence the role of fairness and norms in economic behavior, and undermine the assumption of narrow self-interest.
In the dictator game, the first player, "the dictator", determines how to split an endowment (such as a cash prize) between himself and the second player.The dictator's action space is complete and therefore is at his own will to determine the endowment, which means that the recipient has no influence over the outcome of the game.
While the initial game as developed by Daniel Kahneman involved third-party punishment, successors later simplified the ultimatum game to remove the punishment portion, resulting in the form now known as the dictator game. Based on homo economicus principle, one would expect players to maximize their own payoff; however, it has been shown that human populations are more “benevolent than homo economicus” and therefore rarely do the majority give nothing to the recipient.
In 1988 a group of researchers at the University of Iowa conducted a controlled experiment to evaluate the homo economicus model of behavior with groups of voluntarily recruited economics, accounting, and business students. These experimental results contradict the homo economicus model, suggesting that players in the dictator role take fairness and potential adverse consequences into account when making decisions about how much utility to give the recipient.A later study in neuroscience further challenged the homo economicus model, suggesting that various cognitive differences among humans affect decision-making processes, and thus ideas of fairness.
Experimental results have indicated that adults often allocate money to the recipients, reducing the amount of money the dictator receives.These results appear robust: for example, Henrich, et al. discovered in a wide cross-cultural study that dictators do allocate a non-zero share of the endowment to the recipient. In modified versions of the dictator game, children also tend to allocate some of a resource to a recipient and most five-year-olds share at least half of their goods.
A number of studies have examined psychological framing of the dictator game with a version called "taking" in which the player "takes" resources from the recipient's predetermined endowment, rather than choosing the amount to "give".Some studies show no effect between male and female players, but one 2017 study reported a difference between male and female players in the taking frame.
In 2016, Bhogal et al. conducted a study to evaluate the effects of perceived attractiveness on decision-making behavior and altruism in the standard dictator game, testing theories that altruism may serve as a courtship display. This study found no relationship between attractiveness and altruism.
If these experiments appropriately reflect individuals' preferences outside of the laboratory, these results appear to demonstrate that either:
Additional experiments have shown that subjects maintain a high degree of consistency across multiple versions of the dictator game in which the cost of giving varies.This suggests that dictator game behavior is well approximated by a model in which dictators maximize utility functions that include benefits received by others, that is, subjects are increasing their utility when they pass money to the recipients. The latter implies they are maximizing a utility function that incorporates recipient's welfare and not only their own welfare. This is the core of the "other-regarding" preferences. A number of experiments have shown donations are substantially larger when the dictators are aware of the recipient's need of the money. Other experiments have shown a relationship between political participation, social integration, and dictator game giving, suggesting that it may be an externally valid indicator of concern for the well-being of others. Recent papers have shown that experimental subjects in the lab do not behave differently than ordinary people outside the lab regarding altruism. Studies have suggested that behavior in this game is heritable.
The idea that the highly mixed results of the dictator game prove or disprove rationality in economics is not widely accepted. Results offer both support of the classical assumptions and notable exception which have led to improved holistic economic models of behavior. Some authors have suggested that giving in the dictator game does not entail that individuals wish to maximize others' benefit (altruism). Instead they suggest that individuals have some negative utility associated with being seen as greedy, and are avoiding this judgment by the experimenter. Some experiments have been performed to test this hypothesis with mixed results.
The Trust Game is similar to the dictator game, but with an added first step. In the trust game, one participant first decides how much of an endowment to give to the second participant. The first player is also informed that whatever they send will be tripled by the experimenter. Then the second participant (now acting as a dictator) decides how much of this increased endowment to allocate to the first participant. Thus the dictator's partner must decide how much of the initial endowment to trust with the dictator (in the hopes of receiving the same amount or more in return). The experiments rarely end in the subgame perfect Nash equilibrium of "no trust". A pair of studies published in 2008 of identical and fraternal twins in the US and Sweden suggests that behavior in this game is heritable.
A variation of the dictator game called “Taking Game” (see “Experiments" section above for further detail), emerged from sociological experiments conducted in 2003, in which the dictator decides how much utility to “take” from the recipient's pre-determined endowment. This dictator game variation was designed to evaluate the idea of greed, rather than the idea of fairness or altruism generally evaluated with the standard dictator game model, also referred to as the “Giving Game”.
Game theory is the study of mathematical models of strategic interaction among rational decision-makers. It has applications in all fields of social science, as well as in logic, systems science and computer science. Originally, it addressed zero-sum games, in which each participant's gains or losses are exactly balanced by those of the other participants. Today, game theory applies to a wide range of behavioral relations, and is now an umbrella term for the science of logical decision making in humans, animals, and computers.
Bounded rationality is the idea that rationality is limited, when individuals make decisions, by the tractability of the decision problem, the cognitive limitations of the mind, and the time available to make the decision. Decision-makers, in this view, act as satisficers, seeking a satisfactory solution rather than an optimal one.
The term homo economicus, or economic man, is the portrayal of humans as agents who are consistently rational, narrowly self-interested, and who pursue their subjectively-defined ends optimally. It is a word play on Homo sapiens, used in some economic theories and in pedagogy.
Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the economic decisions of individuals and institutions and how those decisions vary from those implied by classical theory.
Neuroeconomics is an interdisciplinary field that seeks to explain human decision making, the ability to process multiple alternatives and to follow a course of action. It studies how economic behavior can shape our understanding of the brain, and how neuroscientific discoveries can constrain and guide models of economics.
Experimental economics is the application of experimental methods to study economic questions. Data collected in experiments are used to estimate effect size, test the validity of economic theories, and illuminate market mechanisms. Economic experiments usually use cash to motivate subjects, in order to mimic real-world incentives. Experiments are used to help understand how and why markets and other exchange systems function as they do. Experimental economics have also expanded to understand institutions and the law.
The ultimatum game is a game that has become a popular instrument of economic experiments. It was first described by Werner Güth, Rolf Schmittberger, and Bernd Schwarze: One player, the proposer, is endowed with a sum of money. The proposer is tasked with splitting it with another player, the responder. Once the proposer communicates their decision, the responder may accept it or reject it. If the responder accepts, the money is split per the proposal; if the responder rejects, both players receive nothing. Both players know in advance the consequences of the responder accepting or rejecting the offer.
Colin Farrell Camerer is an American Behavioral Financier and a Robert Kirby Professor of Behavioral Finance and Economics at the California Institute of Technology (Caltech).
Inequity aversion (IA) is the preference for fairness and resistance to incidental inequalities. The social sciences that study inequity aversion include sociology, economics, psychology, anthropology, and ethology.
The public goods game is a standard of experimental economics. In the basic game, subjects secretly choose how many of their private tokens to put into a public pot. The tokens in this pot are multiplied by a factor and this "public good" payoff is evenly divided among players. Each subject also keeps the tokens they do not contribute.
John August List is an American economist at the University of Chicago, where he serves as Kenneth C. Griffin Distinguished Service Professor; from 2012 until 2018, he served as Chairman of the Department of Economics. List is noted for his pioneering contributions to field experiments in economics. As detailed in his popular science book, The Why Axis, List uses field experiments to offer new insights in various areas of economics research, such as education, private provision of public goods, social preferences, prospect theory, environmental economics, marketplace effects on corporate and government policy decisions, and multi-unit auctions.
Quantal response equilibrium (QRE) is a solution concept in game theory. First introduced by Richard McKelvey and Thomas Palfrey, it provides an equilibrium notion with bounded rationality. QRE is not an equilibrium refinement, and it can give significantly different results from Nash equilibrium. QRE is only defined for games with discrete strategies, although there are continuous-strategy analogues.
The economics of religion concerns both the application of economic techniques to the study of religion and the relationship between economic and religious behaviours. The relationship between religion and economic behaviour was first identified by Max Weber who attributed the modern advent of capitalism to the Protestant reformation. Adam Smith laid the foundation for economic analysis for religion in The Wealth of Nations stating religious organisations are subject to market forces, incentive and competition problems like any other sector of the economy. Empirical work examines the causal influence of religion in microeconomics to explain individual behaviour and in the macroeconomic determinants of economic growth. Religious economics is a related subject sometimes overlapping or conflated with the economics of religion.
Strong reciprocity is an area of research in behavioral economics, evolutionary psychology, and evolutionary anthropology on the predisposition to cooperate even when there is no apparent benefit in doing so. This topic is particularly interesting to those studying the evolution of cooperation, as these behaviors seem to be in contradiction with predictions made by many models of cooperation. In response, current work on strong reciprocity is focused on developing evolutionary models which can to account for this behavior. Critics of strong reciprocity argue that it is an artifact of lab experiments, and does not reflect cooperative behavior in the real world.
Homo reciprocans, or reciprocating human, is the concept in some economic theories of humans as cooperative actors who are motivated by improving their environment through positive reciprocity or negative reciprocity, even in situations without foreseeable benefit for themselves.
Warm-glow giving is an economic theory describing the emotional reward of giving to others. According to the original warm-glow model developed by James Andreoni, people experience a sense of joy and satisfaction for "doing their part" to help others. This satisfaction - or "warm glow" - represents the selfish pleasure derived from "doing good", regardless of the actual impact of one's generosity. Within the warm-glow framework, people may be "impurely altruistic", meaning they simultaneously maintain both altruistic and egoistic (selfish) motivations for giving. Whereas "pure altruists" are motivated solely by the desire to provide for a recipient, impure altruists are also motivated by the joy of giving. Importantly, warm glow is distinctly non-pecuniary, meaning it arises independent of the possibility of financial reward. Therefore, the warm glow phenomenon is distinct from reciprocal altruism, which may imply a direct financial incentive.
Social preferences are a type of preferences studied in behavioral and experimental economics and social psychology. A person exhibits social preferences if he/she not only cares about his/her own material payoff, but also the reference group's payoff or/and the intention that leads to the payoff. Types of social preferences include altruism, fairness, reciprocity, and inequity aversion.
Third-party punishment, or altruistic punishment, is punishment of a transgressor which is administered, not by a victim of the transgression, but rather by a third party not directly affected by the transgression. It has been argued that third-party punishments are the essence of social norms, as they are evolutionary stable unlike second-party punishments. It has also been shown that third-party punishments are exhibited in all examined populations, though the magnitude of the punishments varies greatly, and that costly punishment co-varies with altruistic behavior. Differences between within-group and inter-group altruistic punishments have also been observed.
Behavioral game theory analyzes interactive strategic decisions and behavior using the methods of game theory, experimental economics, and experimental psychology. Experiments include testing deviations from typical simplifications of economic theory such as the independence axiom and neglect of altruism, fairness, and framing effects. As a research program, the subject is a development of the last three decades. Traditional game theory focuses on mathematical equilibriums, utility maximizing, and rational choice; in contrast, behavioral game theory focuses on choices made by participants in studies and is game theory applied to experiments. Choices studied in behavioral game theory are not always rational and do not always represent the utility maximizing choice.
Urs Fischbacher is a Swiss economist and professor of applied economic research at the University of Konstanz. He is director of the Thurgau Economic Institute, an affiliated institute of the University of Konstanz. He pioneered the field of software tools for experimental economics.