Doctoral Dissertation Research in Economics: Non-isolation and Social Preference

Daily life regularly consists of scenarios where one needs to determine “how fair” to be to others based on current and previous interactions. Deciding whether to hold the door open for the next person, let someone merge ahead in traffic, or take the last crab at a crab feast are all everyday scenarios that could depend on how fair one has been previously.

Multiple rounds of fairness also occur both experimentally in the lab and naturally in the field in higher stakes and economically relevant environments. Managers must decide on bonuses among subordinates (and potentially themselves), and these decisions may or may not depend on their past bonus decisions. In professional baseball, unwritten rules dictate when players should “take a pitch” to help the other team, despite potentially losing hundreds of thousands of dollars in incentives.

This project will examine the features of such dynamic fairness concerns using a laboratory experiment. In addition to testing dynamic fairness concerns, we also examine the methodological issue of payment in relevant experimental settings. When subjects are repeatedly asked questions to provide more data, a common cost-saving measure in laboratory experiments is to randomly choose one decision problem for payment.

The reliability of this method, while commonly used, is dependent on a subject’s dynamic fairness concerns. The standard analysis assumes that there are no dynamics: each choice problem is viewed in isolation. When the experimenter does not know a subject’s concerns, assuming isolation could give rise to incorrect conclusions about that subject’s preferences.

Therefore, this project will also investigate payment methodology’s robustness in terms of experimental design on fairness.

This research contributes threefold to the bodies of literature in social preferences under risk and experimental methodology by using the simplest way to better understand: (i) how individuals make choices in a specific dynamic fairness settings, (ii) which theoretical model(s) of social preference under risk best represent actual data, and (iii) how much of a role isolation plays in social preference experiments. This project will experimentally test the presence of non-isolation in a two-round experiment using the aforementioned “random problem selection” (RPS) payment mechanism.

Each round will be a binary outcome dictator game, where a subject will choose one of two options to split a share of money between themselves and another anonymous subject. In particular, this experiment asks whether having previously chosen a fair (resp. unfair) alternative outcome creates a tendency to choose an unfair (resp. fair) outcome for the next round.

This type of dynamic response is labeled a “choice reversal”, and it identifies non-isolation. However, the dynamic nature of the experiment inevitably induces selection bias. To overcome this challenge, the experiment uses a procedure with possible early resolution of the RPS scheme, which can shut down the effect of RPS in later choice while inducing subject’s choice under RPS for earlier choice.

Therefore, the subject's choice in later rounds will not be affected probabilistically from their earlier round choice, which can then be compared to the control group. Note that non-isolation and reversals are two separate concepts: subjects who do not isolate the problem do not necessarily give rise to reversals. Therefore, the focus will be to jointly test the existence of non-isolation and reversal behavior.

Simultaneously, the parameters of the experiment are chosen to distinguish between three classes of models of social preferences under risk. Dynamic fairness concerns are important factors in economically-relevant individual decision-making problems and their respective welfare analyses. This research's fundamental contributions to understanding these concerns will advise both applied and theoretical economists on appropriate model selection.

For the experimental economist, this research will provide insight into the applicability of the common RPS payment mechanism in such dynamic settings.

This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.