Economist Writing Every Day

“How Dictators Use Information about Recipients” is my new project with Laura Razzolini. A working paper is up at SSRN. We use the Dictator Game to measure if people are generous toward others who made a similar choice.

In the first stage of the experiment, every player gets to make their own choice about whether or not to invest in a risky option (called Option B). Players can pick Option A if they do not want to invest.

In the second stage, participants get to decide if they will send any money to another anonymous player. If a “dictator” (the person who determines the final allocation of money) decided to take the risk on Option B in stage 1, would they be more generous toward a counterpart if they know that person also picked Option B?

We explain in our paper why the literature indicates such a form of favoritism could be expected.

Social identity theory is the psychological basis for intergroup discrimination. Economic experiments have created feelings of group identity in various ways, leading to significant effects on behavior. Chen & Li (2009) demonstrate that group identity formation can affect social preferences.

Chen and Li (2009) started by having subjects review paintings by two different modern artists. The subjects were divided into two groups, based on their reported painting preferences. Subjects were informed about their group membership by the experimenter.

The Chen and Li paper has been cited almost 2000 times. Group identity is a topic of interest. Several experimental papers demonstrate that strangers can have team feelings induced quickly with the right procedures. Those team loyalties affect behavior in incentivized tasks.

Group feelings artificially induced in the lab by Eckel & Grossman (2005) influence levels of cooperation and contributions to public goods. Pan & Houser (2013)  induce group identities by asking subjects to complete tasks in groups.  Pan & Houser (2019) found that investors trust in-group members more. The in-group has been induced in several different ways in lab experiments. In this paper, we investigate whether in-group effects arise from making a common financial decision in the first stage of the experiment.

Do you think our manipulation in the beginning affected giving?

Nope. There was no effect. Dictators who chose Option B did not give more to recipients who also chose Option B.

Not every result in the paper is a null result. One piece of information caused a large increase in giving. If we inform the dictator that their counterpart started with less money in the first stage (due to bad luck) then the dictator would give more. Sympathy was inspired, as we predicted, by knowing if a recipient was “poor” in the experiment. Conversely, if dictators are informed that their counterpart is “rich” then they excused themselves from having to give up money to help.

Information about financial choices, at least in our sterile simple environment, neither polarized nor united the participants. The giving with only choice information was higher than giving to “rich” but lower than giving to “poor”. Lastly, we provided all of the information at once. With full information, dictators were still heavily influenced by the starting endowments and choices information had no effect.

Understanding polarization is important. Humans exhibit tribal instincts to not help those who are perceived as different. In our experiment we seem to have found one difference that that people are willing to tolerate or overlook.

See also my Works in Progress blog about polarization and a different experiment.  

References

Chen, Yan, and Sherry Xin Li. “Group Identity and Social Preferences.” American Economic Review 99, no. 1 (March 2009): 431–57.

Eckel, Catherine C., and Philip J. Grossman. “Managing Diversity by Creating Team Identity.” Journal of Economic Behavior & Organization 58, no. 3 (2005): 371–92.

Pan, Xiaofei, and Daniel Houser. “Why Trust Out-Groups? The Role of Punishment under Uncertainty.” Journal of Economic Behavior & Organization 158 (2019): 236–54.

Pan, Xiaofei Sophia, and Daniel Houser. “Cooperation during Cultural Group Formation Promotes Trust towards Members of Out-Groups.” Proceedings of the Royal Society B: Biological Sciences 280, no. 1762 (July 7, 2013): 20130606.