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A Test of Stability in a Linear Altruism Model

A Test of Stability in a Linear Altruism Model
A Test of Stability in a Linear Altruism Model
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.
Linear Altruism, Trust Game, QRE
0165-1765
85-89
Ioannou, Christos A.
753c2afb-918b-4576-ba47-da42502f37c9
Qi, Shi
bb7f47f8-3504-4d92-8eae-09b9663644b0
Rustichini, Aldo
c3eabb9c-3483-463e-b945-57228e530f5e
Ioannou, Christos A.
753c2afb-918b-4576-ba47-da42502f37c9
Qi, Shi
bb7f47f8-3504-4d92-8eae-09b9663644b0
Rustichini, Aldo
c3eabb9c-3483-463e-b945-57228e530f5e

Ioannou, Christos A., Qi, Shi and Rustichini, Aldo (2013) A Test of Stability in a Linear Altruism Model. Economics Letters, 121 (1), 85-89. (doi:10.1016/j.econlet.2013.07.007).

Record type: Article

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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e-pub ahead of print date: 24 July 2013
Published date: October 2013
Keywords: Linear Altruism, Trust Game, QRE
Organisations: Economics

Identifiers

Local EPrints ID: 340104
URI: https://eprints.soton.ac.uk/id/eprint/340104
ISSN: 0165-1765
PURE UUID: 1fd2066c-fd02-4710-a8cb-ce190b4f9af2

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Date deposited: 13 Jun 2012 09:25
Last modified: 14 Oct 2019 19:10

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Contributors

Author: Christos A. Ioannou
Author: Shi Qi
Author: Aldo Rustichini

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