Departures from self-interest in economic experiments have recently inspired models of "social preferences". We design a range of simple experimental games that test these theories more directly than existing experiments. Our experiments show that subjects are more concerned with increasing social welfare-sacrificing to increase the payoffs for all recipients, especially low-payoff recipients-than with reducing differences in payoffs (as supposed in recent models). Subjects are also motivated by reciprocity: They withdraw willingness to sacrifice to achieve a fair outcome when others are themselves unwilling to sacrifice, and sometimes punish unfair behavior.

We examine experimentally the impact of communication on trust and cooperation. Our design admits observation of promises, lies, and beliefs. The evidence is consistent with people striving to live up to others' expectations so as to avoid guilt, as can be modeled using psychological game theory. When players exhibit such guilt aversion, communication may influence motivation and behavior by influencing beliefs about beliefs. Promises may enhance trustworthy behavior, which is what we observe. We argue that guilt aversion may be relevant for understanding strategic interaction in a variety of settings, and that it may shed light on the role of language, discussions, agreements, and social norms in these contexts. Copyright The Econometric Society 2006.

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