Social comparisons and reference group formation: Some experimental evidence

Abstract

We investigate reference group formation and the impact of social comparisons on ultimatum bargaining using a laboratory experiment. Three individuals compete in a real-e¤ort task for the role of the proposer in a three-player ultimatum game.The role of the responder is randomly allocated. The third individual receives a …xed payment -our treatment variable -and makes no decision. The existence of a non-responder has a dramatic e¤ect on bargaining outcomes. In the most extreme treatment, more than half of the o¤ers are rejected. Behavior shows individuals exhibit self-serving bias in the way they de…ne their reference groups.JEL Classi…cation: C78, C91, D63

Relative Deprivation and School Enrolment. Evidence from Mexico

“…The dynamics leading to the formation of reference groups are complicated—for experimental evidence see McDonald et al . () and for survey evidence see Clark and Senik () and Mangyo and Parker () and Serajuddin and Verme (). We recalculate the index of relative deprivation according to two alternative specifications of the reference group; first by augmenting the geographical criterion adopted so far with an educational criterion based on average years of schooling for adults in the household, specification (7), and then keeping this educational criterion but removing the geographical one—the geographical scope of the index used in specification (8) is therefore the whole country.…”

“…This is because the sharing of certain socio-demographic characteristics may trigger those mechanisms through which the reference group affects the individual, as described by Deutsch and Gerard (1955); among these are the desire to conform to the expectations of the reference group and the acceptance of the information derived from the reference group as reality. The dynamics leading to the formation of reference groups are complicated-for experimental evidence see McDonald et al (2013) and for survey evidence see Clark and Senik (2010) and Mangyo and Parker (2011) and Serajuddin and Verme (2015). We recalculate the index of relative deprivation according to two alternative specifications of the reference group; first by augmenting the geographical criterion adopted so far with an educational criterion based on average years of schooling for adults in the household, specification (7), and then keeping this educational criterion but removing the geographical one-the geographical scope of the index used in specification (8) is therefore the whole country.…”

Tacit Coordination in Games with Third-Party Externalities

“…The evidence suggests that participants care less about the welfare of inactive third parties than the welfare of other decision makers (e.g., Engel and Zhurakhovska, 2012; Güth and van Damme, 1998; Kagel and Wolfe, 2001). Nevertheless, the existence of third parties has been shown to have a signi…cant impact on behavior (e.g., Ellman and Pezanis-Christou, 201), especially when decision makers are in a worse monetary position than the third parties (Engel and Rockenbach, 2011;McDonald et al, 2013). 5 Furthermore, even if agents care less about third parties, the uncertainty about the social preferences of other decision makers in our experiment could serve as a multiplier increasing the number of agents willing to act in the interest of the third party.…”

“…Under these assumptions, decision makers will ignore the consequences their actions have on non-decision makers when facing coordination problems; a fact which may explain why researchers have so far focused exclusively on the decision makers'private incentives overlooking the potential role of third-party externalities. However, by now there is considerable evidence from bargaining and social-dilemma experiments challenging the parsimony of these assumptions, suggesting that at least some individuals are not entirely sel…sh but have social preferences, i.e., their utility does not depend only on their material payo¤, but also on that of other decision makers (e.g., Andreoni et al 2003;Engelmann and Strobel, 2004;Fisman et al, 2007) and, sometimes, on that of third parties (e.g., Ellman and Pezanis-Christou, 2010; McDonald et al, 2013).…”

Mixing the carrots with the sticks: third party punishment and reward

“…We decided to endow Player C with an amount larger than 50 ECU, as an endowment of 50 implies that, unless Player A gives more than 50 ECU to Player B, A will earn more than Player C. Rewarding would therefore increase the earnings difference between A and C, while punishing would reduce it. We kept the endowment of 65 ECU to Player C private so as not to undermine the saliency of the equal split as a potential benchmark for judging which transfers are generous and which are selfish (McDonald et al, 2012).…”