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Social comparisons and reference group formation: Some experimental evidence

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  • McDonald, Ian M.
  • Nikiforakis, Nikos
  • Olekalns, Nilss
  • Sibly, Hugh

Abstract

We experimentally investigate reference group formation and the impact of social comparisons in a three-player ultimatum game. The players compete in a real-effort task for the role of the proposer. The role of the responder is randomly allocated to one of the other two participants. The third participant, the non-responder, receives a fixed payment – our treatment variable – and makes no decision. Knowing the size of this payment, the proposer makes a take-it-or-leave-offer to the responder. Most responders appear to ignore the non-responder when the payment the latter receives is low, but not when it is high. As a result, the existence of a non-responder and the payment they receive has a pronounced effect on bargaining outcomes and increases overall rejection rates. We present a simple model in which agents select the members of their reference group strategically to reduce the extent of cognitive dissonance they experience. The model produces results consistent with our experimental findings.

Suggested Citation

  • McDonald, Ian M. & Nikiforakis, Nikos & Olekalns, Nilss & Sibly, Hugh, 2013. "Social comparisons and reference group formation: Some experimental evidence," Games and Economic Behavior, Elsevier, vol. 79(C), pages 75-89.
  • Handle: RePEc:eee:gamebe:v:79:y:2013:i:c:p:75-89
    DOI: 10.1016/j.geb.2012.12.003
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    Cited by:

    1. Nikos Nikiforakis & Helen Mitchell, 2014. "Mixing the carrots with the sticks: third party punishment and reward," Experimental Economics, Springer;Economic Science Association, vol. 17(1), pages 1-23, March.
    2. Cason, Timothy N. & Gangadharan, Lata & Nikiforakis, Nikos, 2011. "Can real-effort investments inhibit the convergence of experimental markets?," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 97-103, January.
    3. James Bland & Nikos Nikiforakis, 2013. "Tacit Coordination in Games with Third-Party Externalities," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2013_19, Max Planck Institute for Research on Collective Goods.
    4. Riyanto, Yohanes E. & Zhang, Jianlin, 2013. "The impact of social comparison of ability on pro-social behaviour," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 47(C), pages 37-46.
    5. James Andreoni & Nikos Nikiforakis & Jan Stoop, 2017. "Are the Rich More Selfish than the Poor, or Do They Just Have More Money? A Natural Field Experiment," NBER Working Papers 23229, National Bureau of Economic Research, Inc.
    6. Gächter, Simon & Gerhards, Leonie & Nosenzo, Daniele, 2017. "The importance of peers for compliance with norms of fair sharing," European Economic Review, Elsevier, vol. 97(C), pages 72-86.
    7. Bland, James & Nikiforakis, Nikos, 2015. "Coordination with third-party externalities," European Economic Review, Elsevier, vol. 80(C), pages 1-15.
    8. Amy K. Choy & John R. Hamman & Ronald R. King & Roberto A. Weber, 2016. "Delegated bargaining in a competitive agent market: an experimental study," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 2(1), pages 22-35, May.
    9. Björn Bartling & Tobias Gesche & Nick Netzer, 2017. "Does the absence of human sellers bias bidding behavior in auction experiments?," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 3(1), pages 44-61, July.
    10. Lehr, Alex & Vyrastekova, Jana & Akkerman, Agnes & Torenvlied, René, 2016. "Spillovers and conflict in wage bargaining: Experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 63(C), pages 59-68.
    11. Benndorf, Volker & Rau, Holger A. & Sölch, Christian, 2018. "Minimizing learning behavior in repeated real-effort tasks," Center for European, Governance and Economic Development Research Discussion Papers 343, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    Social comparisons; Ultimatum bargaining; Laboratory experiments; Cognitive dissonance; Real-effort;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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