• 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.
Ernst Fehr and Simon Gächter, “Fairness and Retaliation: The Economics of Reciprocity.” Journal of Economic Perspectives 14(3): 159-181, Summer, 2000.
• Positive reciprocity is when a kind act is met with kindness in return; negative reciprocity is when an unkind or unfair act is met with retaliation.
• The existence of a subset of reciprocal actors can enforce cooperative norms, though details of the environment will matter as to whether cooperation will out.
• In the Ultimatum Game, offers of less than 30% of the stake often get rejected, indicating that some types of negative reciprocity are common. But some 20 or 30 percent of folks do not reciprocate. People might be a little more likely to be negative reciprocators (punishing unfair acts) than positive reciprocators (rewarding good behavior).
• In some settings, the behavior of reciprocal people and self-interested people eventually becomes indistinguishable, whether for cooperating or free riding; that is, their motives are different, but their actual behaviors can be identical. Opportunities to punish free riders are key to sustaining cooperation.
• Reciprocity can promote contract enforcement.
• The provision of explicit incentives in a contractual relationship can engender mistrust and lead to lessened effort. As a result, firms might prefer incomplete contracts that lead to a sort of “gift exchange” and high effort.
Roy F. Baumeister, “Self-regulation, Ego Depletion, and Inhibition.”
Neuropsychologia 65: 313–319, 2014.
• Note that most moral rules concern inhibitions, “do nots”; most emotion regulation is about controlling bad feelings. The average person in a country like the US spends 3 to 4 hours per day inhibiting.
• Regulation seems to depend on a limited resource, like energy, and it can be depleted; in some experiments depleted people perform worse on follow-up tasks that require perseverance.
• Ego depletion is the name given to being in a state where the ability to inhibit desires, to sustain willpower, is weakened. Depleted people, therefore, fail to inhibit behaviors that they otherwise would inhibit: aggression, inappropriate sexual responses, overeating, and impulsive spending, for instance.
• Nonetheless, ego depletion doesn’t mean that the fuel tank is empty; rather, it is more like the body makes an effort to conserve a depletable resource that is only somewhat compromised, as our bodies do with muscles. Ego depletion, therefore, can be overcome with directed effort.
• Making choices also depletes willpower, whereas exercising self-control harms subsequent decision-making.
• Despite some previous findings suggesting the contrary, it does not appear to be the case that ego depletion is equivalent to a fall in blood sugar. Nonetheless, low levels of blood sugar “predict poor self-regulation.” And, depleted people who get a hit of glucose then behave as if they are not depleted.
• The ability to inhibit is partly a trait (recall the marshmallow test) and partly a state. Fatigue is a marker of being in a depleted state. Depletion doesn’t create new feelings, but intensifies existing feelings, while making it harder to inhibit acting on those feelings.
Roy F. Baumeister, “Self-Control, Fluctuating Willpower, and Forensic Practice.” Journal of Forensic Practice 15(2): 85-96, 2013.
• Self-control and the ability to meet external standards of behavior depend on a limited resource (willpower) that fluctuates in quantity.
• Criminals seem to be poor at self-control. But it is not just ne’er-do-wells who succumb to moments of weakness – moments that combine a strong temptation with temporarily low willpower. A hardened criminal and a model citizen might differ by only a few moments of willpower lapses brought on by many potential stresses and hassles.
• Alcohol is the great unprovoker of self-control, in virtually all dimensions. In part the diminished control occurs by skewing self-monitoring. Alcohol probably doesn’t make someone more aggressive, but it undermines self-constraints when a situation of potential aggression arises.
• The energy to override impulses is key to self-control, and that energy can be run down: “ego depletion.” Experiments show that exerting willpower in one domain leaves less willpower available to override temptation in another domain.
• The stock of willpower has a general character; people who have self-control for one task or behavior have it more generally (which is not to say that it cannot be depleted).
• Energy depletion has physical dimensions. Blood glucose levels fall following the exertion of self-control. Low glucose levels seem to be the basis for low willpower; consuming energy-rich food restores glucose and willpower. [The connection between glucose and willpower remains controversial.]
• Significant amounts of criminal activity take place in a low glucose state. The poor diet of gang members can undermine their behavior.
• The immune system uses up lots of glucose when fighting off germs, but not much otherwise. So someone can suddenly see willpower shortfalls even before they know they are sick.
• Decision making leads to ego depletion! And the relationship is symmetric, in that after you exert self-control, you make bad decisions.
• Depleted people avoid or postpone decisions, and are bad at compromise; when they make decisions, those decisions tend to be impulsive.
• Stress harms self-control – even the belief that your life is stressful harms self-control. People who exhibit self-control tend not to be too stressed. Good habits and routines are markers of self-control, and help control stress, too.
• There seems to be a vicious cycle, whereby poor self-control leads to bad situations which cause stress and further undermine willpower….
• Good life outcomes are associated with intelligence and self-control. Increasing intelligence is hard, but self-control can be improved. Building up self-control in an arbitrary way – using your opposite hand to brush your teeth – seems to make more willpower available for meaningful activity…
• …but people are often motivated to work on self-control for something meaningful, like getting in shape; their exercise will have self-control benefits in many unrelated areas.
Supreet Kaur, Michael Kremer, and Sendhil Mullainathan, “Self-Control and the Development of Work Arrangements.” American Economic
Review 100: 624-628, May 2010.
• The starting point is the notion that self-control shortcomings make it likely that workers will not work as hard as THEY would like – and workplace organization can counteract these self-control problems.
• Once again we are faced with the welfare question of whose side we are on, the patient long-run worker or the present-biased worker who makes all the current decisions.
• Work often involves a long lag between effort and reward; regular pay can reduce that lag for a worker.
• Having the work pace set by some outside force (the assembly line) is a type of commitment device.
• The production setting can involve cues such as uniforms that might promote work effort.
• Co-workers will be the source of peer effects, which can operate through various channels, including emulation and monitoring; the peer effects might or might not contribute to production efficiency.
• The article describes an experiment with Indian piece-rate workers engaged in data entry. Instead of the standard piece-rate, they could choose a target output, and be penalized (by losing half their wages) if they failed to reach it. About one-third of those offered these commitment contracts accepted them.
Ted O’Donoghue and Matthew Rabin, “Incentives and Self Control.” In Richard Blundell, Whitney Newey, and Torsten Persson, eds.,
Advances in Economics and Econometrics: Volume 2: Theory and Applications
(Ninth World Congress), Cambridge University Press, 2006, pp. 215-245 [pdf of pre-publication version here].
• Present biased people might gain through commitment, such as commitments to study or to exercise. Heterogeneity among individuals and uncertain future costs and opportunities, necessitate some flexibility in plans.
• The case against exponential discounting is similar to the case against expected utility theory: a slight bias for today versus next week, which seems perfectly reasonable, implies ridiculous decisions at longer time frames for exponential discounters.
• Sophisticates can predict their own future self-control problems whereas naïfs are (blissfully?) unaware.
• People do not use the same discount rate for all decisions; they both plan for the long-term and give way to short-term indulgence. They hold both savings and credit card balances.
• You can alter incentives to influence present-biased folks without affecting exponential discounters. You can manipulate defaults, as with Save More Tomorrow, or mandate active choice.
• If the choice is to quit a habit now or later, many people will postpone their quitting, but if the choice is now or never, they will quit now. Naïfs don’t choose an addicted life course – they just choose one more day of addiction, again and again and again.
Ted O’Donoghue and Matthew Rabin, “Studying Optimal Paternalism, Illustrated by a Model of Sin Taxes." American Economic Review 93(2): 186-191, May 2003.
• “Economists will and should be ignored if we continue to insist that it is axiomatic that constantly trading stocks or accumulating consumer debt or becoming a heroin addict
must be optimal for the people doing these things merely because they have chosen to do it [page 186].”
• In the quasi-hyperbolic utility function, Beta < 1 implies a time-inconsistent preference for immediate gratification. In the welfare (efficiency) analysis, this preference for immediate gratification is treated as an error. That is, society sides with the long-run Dr. Jekyll, not the impatient short-run Mr. Hyde.
• In the model, potato chips have present benefits but future costs. The quasi-hyperbolic decision maker, or at least the Mr. Hyde component of that decision maker, undervalues those future costs.
• What is the most efficient way for the government to raise (a given amount of) revenue through taxes on the two goods, carrots and potato chips? If there were no present bias, both goods should be taxed equally. But if some consumers display present bias, efficiency suggests taxing the tempting good, potato chips, at significantly higher rates.
• High taxes on potato chips do not harm fully “rational” consumers much, but help present-biased people significantly by internalizing the “internality.”
• Offering commitment options to sophisticated present-biased people could help them, with little or no cost to those who are not biased. (A sophisticated present-biased person is someone who understands that she is present biased, and hence might be willing to pre-commit in such a way as to restrain her future choices.)
• More generally, policy might want to take into account the possibility of less-than-rational behavior. Some policies that might be valuable include mandatory cooling-off periods, required information disclosure, and careful selection of default options.
