A Test of Stability in a Linear Altruism Model

Abstract

Linear altruism is a functional form used extensively in outcome-based models of social preferences: the underlying assumption is that individuals have a utility over monetary outcome profiles that depends on their and other players' payments. Behavior in strategic interactions is explained as a Nash equilibrium of the game, where final payoffs are paid in these utility units. Linear altruism and other theories of social preferences 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, because 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 behavior 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 behavior can be extrapolated without any rational expectation assumptions. We find that the representative first mover is less altruistic in the QRE approach than the representative second mover in the second approach. 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.

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