Lecture 14 - Altruistic Behaviour

Question 1

Briefly explain what the Dictator Game is

Answer 1

• The Dictator Game is a simple experiment demonstrating “other regarding” behaviour
• It is essentially an experiment investigating preferences for giving
• In the dictator game there are two people, the dictator and the recipient. There is a $5 endowment and the dictator chooses how to divide the endowment

Question 2

Through the experiment being replicated many times, what factors have been shown to affect the distribution of offers?

Answer 2

Throughout the experiment being replicated many times, many factors have been shown to affect the distribution of offers:
1- Real versus hypothetical stakes
2- Social distance between dictator and recipient
3- Anonymity of dictator
4- Whether endowment earned or unearned

Question 3

Explain the results of the Dictator Game experiment and what do they tell us?

Answer 3

• Economic theory usually assumes that individuals act in their self-interest
• Dictator game provides evidence that if people are acting in self-interest their self-interest is not the same as maximizing their own earnings
• One explanation for why some people give away money in the Dictator Game is that people maximise utility, but utility depends on more that just own-earnings
• This has led to the development of models of ‘distributional preferences’ or ‘social preferences’ which incorporate distributional concerns into utility function

Question 4

Explain the Andreoni and Miller (1998) experiment

Answer 4

In this game:
- Dictators make choices for several different budget sets
- Dictator endowed with tokens
- Tokens are held or passed and converted into points
- One budget randomly selected and subjects are paid $0.10/point

Question 5

In the Andreoni and Miller experiment, what does π represent

Answer 5

π represents earnings

Question 6

In the Andreoni and Miller experiment what factors determine the budget constraint?

Answer 6

Token endowment and pass and hold values determine the budget constraint

Question 7

State the formulas for working out πself, πother and token endowment in the Andreoni and Miller experiment

Answer 7

• πself = Own earnings in points = (Tokens held)*(hold value)
• πother = Other’s earnings in points = (Tokens passed)*(pass value)
• Token endowment = Tokens held + Tokens passed = πself/hold value + πother/pass value

Question 8

Explain the results of the Andreoni and Miller experiment

Answer 8

• Out of 176 subjects, only 18 violated the axioms of revealed preference and 14 of these were minor violations
• It was found that subjects exhibit a significant degree of altruistic behaviour and that over 98% of subjects made choices that are consistent with utility maximisation

Question 9

What were the 3 categories that subjects were classified in following the Andreoni and Miller experiment?

Answer 9

1- Selfish: Their utility depends only on their own earnings, the subject will always hold all tokens
2- Leontief: The subject will always equalise earnings
3- Perfect substitutes: The subject will always maximise total earnings