Players in economic situations often have preferences not only over their own outcome but also over what happens to fellow players, entirely apart from any strategic considerations. While this can be modeled directly by simply writing down final preferences, these are commonly unknown a priori. In many cases it is therefore both helpful and instructive to explicitly model these interactions. This paper presents a simple structure in the context of game theory, building on a model due to Bergstrom, that incorporates these ‘synergisms’ between players. It is powerful enough to cover a wide range of such interactions and model many disparate experimental and empirical results, yet straightforward enough to be used in many applied situations where altruism, or a baser motive, is implied.
References
[1]
Frank, R.H. If Homo Economicus could choose his own utility function, would he want one with a conscience? Am. Econ. Rev. 1987, 77, 593–604.
[2]
Barro, R.J. Are government bonds net wealth? J. Polit. Econ. 1974, 82, 1095–1117.
[3]
Kotlikoff, L.J.; Razin, A.; Rosenthal, R.W. A strategic altruism model in which ricardian equivalence does not hold. Econ. J. 1990, 100, 1261–1268, doi:10.2307/2233972.
[4]
Kimball, M.S. Making sense of two-sided altruism. J. Monet. Econ. 1987, 20, 301–326, doi:10.1016/0304-3932(87)90018-3.
[5]
Bisin, A.; Verdier, T. On the cultural transmission of preferences for social status. J. Public Econ. 1998, 70, 75–97, doi:10.1016/S0047-2727(98)00061-9.
[6]
Bisin, A.; Verdier, T. The economics of cultural transmission and the dynamics of preferences. J. Econ. Theory 2001, 97, 298–319, doi:10.1006/jeth.2000.2678.
[7]
Rotemberg, J.J. Human relations in the workplace. J. Polit. Econ. 1994, 102, 684–717.
[8]
Becker, G.S. A theory of social interactions. J. Polit. Econ. 1974, 82, 1063–1093.
[9]
Bruce, N.; Waldman, M. The rotten-kid theorem meets the samaritan’s dilemma. Q. J. Econ. 1990, 105, 155–165, doi:10.2307/2937823.
[10]
Coate, S. Altruism, the samaritan’s dilemma, and government transfer policy. Am. Econ. Rev. 1995, 85, 46–57.
[11]
Bernheim, B.D.; Stark, O. Altruism within the family reconsidered: Do nice guys finish last? Am. Econ. Rev. 1988, 78, 1034–1045.
[12]
Collard, D. Edgeworth’s propositions on altruism. Econ. J. 1975, 85, 355–360, doi:10.2307/2230997.
[13]
Maccheroni, F.; Marinacci, M.; Rustichini, A. Social Decision Theory: Choosing within and between Groups; Working Paper; Università Bocconi: Bocconi, Italy, 2010.
[14]
Bergstrom, T.C. On the evolution of altruistic ethical rules for siblings. Am. Econ. Rev. 1995, 85, 58–81.
[15]
Dekel, E.; Ely, J.; Yilankaya, O. Evolution of preferences. Rev. Econ. Stud. 2007, 74, 685–704.
Palfrey, T.R.; Rosenthal, H. Private incentives in social dilemmas: The effects of incomplete information and altruism. J. Public Econ. 1988, 35, 309–332, doi:10.1016/0047-2727(88)90035-7.
[18]
Cooper, R.; DeJong, D.; Forsythe, R.; Ross, T. Communication in coordination games. Q. J. Econ. 1992, 107, 739–771, doi:10.2307/2118488.
[19]
Levine, D. Modeling altruism and spitefulness in experiments. Rev. Econ. Dyn. 1998, 1, 593–622, doi:10.1006/redy.1998.0023.
[20]
Charness, G.; Haruvy, E. Altruism, equity, and reciprocity in a gift-exchange experiment: An encompassing approach. Games Econ. Behav. 2002, 40, 203–231, doi:10.1016/S0899-8256(02)00006-4.
[21]
Andreoni, J.; Miller, J. Giving according to GARP: An Experimental test of the consistency of preferences for altruism. Econometrica 2002, 70, 737–753, doi:10.1111/1468-0262.00302.
[22]
Geanakoplos, J.; Pearce, D.; Stacchetti, E. Psychological games and sequential rationality. Games Econ. Behav. 1989, 1, 60–79, doi:10.1016/0899-8256(89)90005-5.
[23]
Rabin, M. Incorporating fairness into game theory and economics. Am. Econ. Rev. 1993, 83, 1281–1302.
[24]
Sally, D. On sympathy and games. J. Econ. Behav. Organ. 2001, 44, 1–30, doi:10.1016/S0167-2681(00)00153-0.
[25]
Bergstrom, T.C. Love and spaghetti, the opportunity cost of virtue. J. Econ. Perspect. 1989, 3, 165–173.
[26]
Bergstrom, T.C. Systems of benevolent utility functions. J. Public Econ. Theory 1999, 1, 71–100.
[27]
Hori, H. Nonpaternalistic altruism and functional interdependence of social preferences. Soc. Choice Welf. 2009, 32, 59–77, doi:10.1007/s00355-008-0310-3.
[28]
Wolpert, D.H.; Jamison, J.; Newth, D.; Harre, M. Strategic choice of preferences: The persona model. B.E. J. Theor. Econ. 2011, 11, 18.