Levitt and List (2007) on Laboratory Experiments

Steven D. Levitt and John A. List, “What Do Laboratory Experiments Measuring Social Preferences Reveal about the Real World?” Journal of Economic Perspectives 21(2): 153-174, Spring, 2007.

• Five laboratory games that reveal something about pro-social behavior: (1) the Ultimatum Game; (2) the Dictator Game; (3) the Trust Game; (4) the Gift Exchange Game (where the first player requests a level of “effort” from the second player -- pdf here); and (5) the Public Goods Game (good video here). In the real world, it can be hard to differentiate between pro-social preferences and sophisticated self-interest seeking. 

• Model notation: action choice a; wealth W; stakes (or value) v; moral cost M; social norms n; and scrutiny s. 

• The higher the negative financial externality an action imposes on others, the higher the moral cost M is taken to be. (Levitt and List also assume that this externality increases with the stakes v). M is higher the greater the deviation between action a and the social norm n. M also is raised by increased scrutiny s. 

• Individual utility is U(a, v, n, s) = M(a, v, n, s) + W(a, v). Higher stakes v can raise W while raising M, too, but the authors assume that W rises more quickly with v. (Another interpretation might be that the norm changes with v, so that selfish behavior receives more social imprimatur.) 

• Scrutiny is different and typically more intense in the lab, exaggerating pro-social behaviors. (Alternatively, scrutiny from one’s children or other family members has no lab parallel.) Further, lab participants might believe that an experiment demands some pro-social behavior. 

• Behavior might be sensitive to factors that unavoidably vary between the lab and the real world: the experimenter cannot fully control the context. Participants bring context with them, and hence are playing a different game. 

• Lab participants self-select, directly or indirectly, while market participants self-select, too.