Experiments provide a controlled setting where factors can be isolated and studied more easily than in the field, but they often do not allow participants to sort into or out of environments based on their preferences, beliefs, and skills. We conduct an experiment to demonstrate the importance of sorting in the context of social preferences. When individuals are constrained to play a dictator game, 74% of the subjects share. But when subjects are allowed to avoid the situation altogether, less than one third share. This reversal of proportions illustrates that the influence of sorting limits the generalizability of experimental findings that do not allow sorting. Moreover, institutions designed to entice pro-social behavior may induce adverse selection. We find that increased payoffs prevent foremost those subjects from opting out who share the least initially. Thus the impact of social preferences remains much lower than in a mandatory dictator game, even if sharing is subsidized by higher payoffs. Our experiment also sheds light on the motives for sharing. While much sharing is consistent with other-regarding preferences, the majority of subjects share without really wanting to, as evidenced by their willingness to avoid the dictator game and to even pay for avoiding it.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
12041.
Length: Date of creation: Feb 2006 Date of revision: Handle: RePEc:nbr:nberwo:12041
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Find related papers by JEL classification: B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General D64 - Microeconomics - - Welfare Economics - - - Altruism
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Young Han Lee & Ulrike Malmendier, 2007.
"The Bidder's Curse,"
NBER Working Papers
13699, National Bureau of Economic Research, Inc.
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