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Abstract:We examine a simple theory of altruism in which players payoffs are linear in their own monetary income and their opponent's. The weight on opponent's income is private information and varies in the population, depending, moreover, on what the opponent's coefficient is believed to be. Using results of ultimatum experiments and the final round of a centipede experiment, we are able to pin down relatively accurately what the distribution of altruism (and spite) in the population is. This distribution is then used with a reasonable degree of success to explain the results of the earlier rounds of centipede and the results of some public goods contribution games. In addition we show that in a market game where the theory of selfish players does quite well, the theory of altruism makes exactly the same predictions as the theory of selfish players. © This document is copyrighted by the author. You may freely reproduce and distribute it electronically or in print, provided it is distributed in its entirety, including this copyright notice. 1 This work was supported in part by the UCLA Academic Senate and by NSF Grant SBR-93-20695. Discussions with Drew Fudenberg, Tom Palfrey, Robert Rosenthal, John Van Huyck and comments by participants at the University of Chicago Theory Workshop, the UCLA Theory Workshop, the Harvard/MIT joint theory workshop and the Hong Kong University of Science and Technology Theory Workshop are also gratefully acknowledged. I would also like to thank Ramon Marimon and two anonymous referees for their guidance. 2 Department of Economics, UCLA. 1 IntroductionStandard theory applied to the study of experiments generally examines a refinement of Nash equilibrium such as subgame perfection, and assumes that participants are selfish in the sense that they care only about their own monetary income. 3Some (but not all) experiments cannot be explained by this theory. Two robust sets of experiments of this sort are those on ultimatum bargaining and on public goods contribution games.In ultimatum bargaining, the first player proposes a division of a fixed amount of money that may be accepted or rejected by the second player. According to the theory, any demand that leaves the second player with anything should be accepted, and consequently the proposer should either demand the entire amount or at least the greatest amount less than the entire amount. In fact proposers do not demand nearly this amount, generally demanding between 50-60% of the total, and ungenerous demands that are significantly less than the entire amount are frequently rejected.In public goods contribution games, players may make a costly donation to a common pool that provides a social benefit greater than the contribution. Because of the free rider problem, it is typically a dominant strategy not to contribute anything. Never the less, with as many as 10 or more players, some players contribute to the common pool.One explanation of these phenomena is that the equilibrium concept is wrong, and this has been explored by a variet...

We develop a theory of general equilibrium with endogenous debt limits in the form of individual rationality constraints similar to those in the dynamic consistency literature. If an agent defaults on a contract, he can be excluded from future contingent claims markets trading and can have his assets seized. He cannot be excluded from spot markets trading, however, and he has some private endowments that cannot be seized. t\1l information is publicly held and common knowledge, and there is a complete set of contingent claims markets. Since there is complete information, an agent cannot enter into a contract in which he would have an incentive to default in some state. In general there is only partial insurance: variations in consumption may be imperfectly correlated across agents; interest rates may be lower than they would be without constraints; and equilibria may be Pareto ranked.

I t is widely believed that rational choice theory is grossly inconsistent with empirical observations about voter turnout. We report the results of an experiment designed to test the voter turnout predictions of the rational choice Palfrey-Rosenthal model of participation with asymmetric information. We find that the three main comparative statics predictions are observed in the data: the size effect, whereby turnout goes down in larger electorates; the competition effect, whereby turnout is higher in elections that are expected to be close; and the underdog effect, whereby voters supporting the less popular alternative have higher turnout rates. We also compare the quantitative magnitudes of turnout to the predictions of Nash equilibrium. We find that there is undervoting for small electorates and overvoting for large electorates, relative to Nash equilibrium. These deviations from Nash equilibrium are consistent with the logit version of Quantal Response Equilibrium, which provides a good fit to the data, and can also account for significant voter turnout in very large elections.

Abstract:We propose that a simple "dual-self" model gives a unified explanation for several empirical regularities, including the apparent time-inconsistency that has motivated models of hyperbolic discounting and Rabin's paradox of risk aversion in the large and small. The model also implies that self-control costs imply excess delay, as in the O'Donoghue and Rabin models of hyperbolic utility, and it explains experimental evidence that increased cognitive load makes temptations harder to resist. Finally, the reduced form of the base version of our model is consistent with the Gul-Pesendorfer axioms. 1 We thank David Laibson and Matt Rabin for many years of instructive conversations on related topics, Stefano DellaVigna and Ulrike Malmendier for helpful discussion of their research, and Drazen Prelec and Antonio Rangel for detailed comments on an earlier draft. We are grateful to NSF grants SES-01-12018, SES-03-14713, and SES-04-26199 for financial support.