To understand why investors hold socially responsible mutual funds, we link administrative data to survey responses and behavior in incentivized experiments. We find that both social preferences and ...social signaling explain socially responsible investment (SRI) decisions. Financial motives play less of a role. Socially responsible investors in our sample expect to earn lower returns on SRI funds than on conventional funds and pay higher management fees. This suggests that investors are willing to forgo financial performance in order to invest in accordance with their social preferences.
Explaining the evolution and maintenance of cooperation among unrelated individuals is one of the fundamental problems in biology and the social sciences. Recent findings suggest that altruistic ...punishment is an important mechanism maintaining cooperation among humans. We experimentally explore the boundaries of altruistic punishment to maintain cooperation by varying both the cost and the impact of punishment, using an exceptionally extensive subject pool. Our results show that cooperation is only maintained if conditions for altruistic punishment are relatively favourable: low cost for the punisher and high impact on the punished. Our results indicate that punishment is strongly governed by its cost-to-impact ratio and that its effect on cooperation can be pinned down to one single variable: the threshold level of free-riding that goes unpunished. Additionally, actual pay-offs are the lowest when altruistic punishment maintains cooperation, because the pay-off destroyed through punishment exceeds the gains from increased cooperation. Our results are consistent with the interpretation that punishment decisions come from an amalgam of emotional response and cognitive cost-impact analysis and suggest that altruistic punishment alone can hardly maintain cooperation under multi-level natural selection. Uncovering the workings of altruistic punishment as has been done here is important because it helps predicting under which conditions altruistic punishment is expected to maintain cooperation.
Power imbalance often leads to unequal allocations. However, it remains largely unknown how different forms of power and meritocratic considerations interact to shape fairness perceptions. Using ...modified Ultimatum Games, we examined how two power forms-decision power and availability of attractive outside option-affect bargaining behavior and fairness perceptions, and how meritocratic considerations are incorporated into the fairness perceptions of powerful and powerless individuals. We identified an asymmetric power effect: having increased decision power or attractive outside options independently increased self-advantageous allocations and self-serving fairness perceptions, whereas the combined lack of both power forms led to self-disadvantageous allocations but had no influence on fairness perceptions. The power effect on fairness perceptions became symmetric when power was obtained through a meritocratic process (procedural justice). In contrast, relative contributions to resource production (distributive justice) did not moderate power effects. We provide causal evidence that the powerful, but not the powerless, strive to minimize cognitive dissonance between behavior and fairness perceptions by interpreting fairness in self-serving ways. This study contributes novel insights into the interplay between different power forms, the asymmetry of power effects, the moderating role of procedural justice, and the mediating role of behavior in the power-driven adjustment of fairness perceptions.
We experimentally explore the effect of performance information and production uncertainties on (i) subjective entitlements derived from the production process and (ii) bargaining over the jointly ...produced surplus. We hypothesize that performance information and details of the production process affect entitlements, which in turn influence bargaining behavior. We find that, without performance information, subjective entitlements are mostly mutually consistent, and bargaining mainly ends with an equal split. In stark contrast, negotiators derive strong, mutually inconsistent, subjective entitlements when there is performance information. These subjective entitlements affect opening proposals, concessions, and bargaining duration and lead to asymmetric agreements. Moreover, given performance information, endogenous variations in entitlements influence bargaining, suggesting an independent role of subjective entitlements. Production uncertainties influence bargaining, especially when performance information is present, but do not substantially mitigate the effect of entitlements. Theoretical bargaining models allowing for reference points or fairness principles can partly account for the empirical results. Yet, important aspects are left unexplained and our results suggest ways for extending these models.
Data, as supplemental material, are available at
http://dx.doi.org/10.1287/mnsc.2014.2012
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This paper was accepted by Uri Gneezy, behavioral economics
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Situations where independent agents need to align their activities to achieve individually and socially beneficial outcomes are abundant, reaching from everyday situations like fixing a time for a ...meeting to global problems like climate change agreements. Often such situations can be described as stag-hunt games, where coordinating on the socially efficient outcome is individually optimal but also entails a risk of losing out. Previous work has shown that in fixed interaction neighborhoods agents' behavior mostly converges to the collectively inefficient outcome. However, in the field, interaction neighborhoods often can be self-determined. Theoretical work investigating such circumstances is ambiguous in whether the efficient or inefficient outcome will prevail. We performed an experiment with human subjects exploring how free neighborhood choice affects coordination. In a fixed interaction treatment, a vast majority of subjects quickly coordinates on the inefficient outcome. In a treatment with neighborhood choice, the outcome is dramatically different: behavior quickly converges to the socially desirable outcome leading to welfare gains 2.5 times higher than in the environment without neighborhood choice. Participants playing efficiently exclude those playing inefficiently who in response change their behavior and are subsequently included again. Importantly, this mechanism is effective despite that only few exclusions actually occur.
The prevalence of cooperation among humans is puzzling because cooperators can be exploited by free riders. Peer punishment has been suggested as a solution to this puzzle, but cumulating evidence ...questions its robustness in sustaining cooperation. Amongst others, punishment fails when it is not powerful enough, or when it elicits counter-punishment. Existing research, however, has ignored that the distribution of punishment power can be the result of social interactions. We introduce a novel experiment in which individuals can transfer punishment power to others. We find that while decentralised peer punishment fails to overcome free riding, the voluntary transfer of punishment power enables groups to sustain cooperation. This is achieved by non-punishing cooperators empowering those who are willing to punish in the interest of the group. Our results show how voluntary power centralisation can efficiently sustain cooperation, which could explain why hierarchical power structures are widespread among animals and humans.
In public-good provision, privileged groups enjoy the advantage that some of their members find it optimal to supply a positive amount of the public good. However, the inherent asymmetric nature of ...these groups may make the enforcement of cooperative behavior through informal sanctioning harder to accomplish. In this article, the authors experimentally investigate public-good provision in normal and privileged groups with and without decentralized punishment. The authors find that compared to normal groups, privileged groups are relatively ineffective in using costly sanctions to increase everyone's contributions. Punishment is less targeted toward strong free riders, and they exhibit a weaker increase in contributions after being punished. Thus, the authors show that privileged groups are not as privileged as they initially seem.
Humans can choose between fundamentally different options, such as watching a movie or going out for dinner. According to the utility concept, put forward by utilitarian philosophers and widely used ...in economics, this may be accomplished by mapping the value of different options onto a common scale, independent of specific option characteristics (Fehr and Rangel, 2011; Levy and Glimcher, 2012). If this is the case, value-related activity patterns in the brain should allow predictions of individual preferences across fundamentally different reward categories. We analyze fMRI data of the prefrontal cortex while subjects imagine the pleasure they would derive from items belonging to two distinct reward categories: engaging activities (like going out for drinks, daydreaming, or doing sports) and snack foods. Support vector machines trained on brain patterns related to one category reliably predict individual preferences of the other category and vice versa. Further, we predict preferences across participants. These findings demonstrate that prefrontal cortex value signals follow a common scale representation of value that is even comparable across individuals and could, in principle, be used to predict choice.
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