Dictator game

The dictator game is a game in experimental economics, similar to the ultimatum game, first developed by Daniel Kahneman and colleagues.^[1] Experimental results offer evidence against the rationally self-interested individual (sometimes called the homo economicus) concept of economic behavior,^[2] though precisely what to conclude from the evidence is controversial.^[3]

Description

In the dictator game, the first player, "the dictator", determines how to split an endowment (such as a cash prize) between himself and the second player. The second player, "the recipient", simply receives the remainder of the endowment left by the dictator. The recipient's role is entirely passive and has no input into the outcome of the game. As a result, the dictator game is not formally a proper game (as the term is used in game theory). To be a proper game, every player's outcome must depend on the actions of at least one other's. Since the dictator's outcome depends only on his own actions, this situation is one of decision theory. Despite this formal point, the dictator game is used in the game theory literature as a degenerate game. This game has been used to test the homo economicus model of individual behavior: if individuals were only concerned with their own economic well being, dictators would allocate the entire good to themselves and give nothing to the recipient.

Adults' and children's behavior in dictator games

Experimental results have indicated that adults often allocate money to the recipients, reducing the amount of money the dictator himself receives.^[4] These results appear robust: for example, Henrich, et al. discovered in a wide cross-cultural study that dictators do allocate a non-zero share of the endowment to the recipient.^[5] In modified versions of the dictator game, children also tend to allocate some of a resource to a recipient and most five-year-olds share at least half of their goods.^[6]

If these experiments appropriately reflect individuals' preferences outside of the laboratory, these results appear to demonstrate that either:

Dictators fail to maximize their own expected utility,
Dictators' utility functions may include non-tangible harms they incur (for example self-image or anticipated negative views of others in society), or
Dictators' utility functions may include benefits received by others.

Additional experiments have shown that subjects maintain a high degree of consistency across multiple versions of the dictator game in which the cost of giving varies.^[7] This suggests that dictator game behavior is, in fact, altruism instead of the failure of optimizing behavior.^{[clarification needed]} Other experiments have shown a relationship between political participation and dictator game giving, suggesting that it may be an externally valid indicator of concern for the well-being of others.^[8]^[9]

Challenges

The idea that the highly mixed results of the Dictator game prove or disprove rationality in economics is not widely accepted. Results offer both support of the classical assumptions and notable exception which have led to improved holistic economic models of behavior. Some authors have suggested that giving in the dictator game does not entail that individuals wish to maximize others' benefit (altruism). Instead they suggest that individuals have some negative utility associated with being seen as greedy, and are avoiding this judgment by the experimenter. Some experiments have been performed to test this hypothesis with mixed results.^[10]

Further experiments testing experimental effects have been performed. Bardsley has performed experiments where individuals are given the opportunity to give money, give nothing, or take money from the respondent.^[3] In these cases most individuals far from showing altruism actually take money. And comparing the taking games with dictator games which start from the same endowments, most people who give in the dictator game would take in a taking game. Bardsley suggests two interpretations for these results. First, it may be that the range of options provides different cues to experimental subjects about what is expected of them. "Subjects might perceive dictator games as being about giving, since they can either do nothing or give, and so ask themselves how much to give. Whilst the taking game... might appear to be about taking for analogous reasons, so subjects ask themselves how much to take."^[3] Under this interpretation, dictator game giving is a response to demand characteristics of the experiment. Second, subjects' behavior may be affected by a kind of framing effect. What a subject considers to be an appropriately kind behavior depends on the range of behaviors available. In the taking game, the range includes worse alternatives than the dictator game. As a result giving less, or even taking, may appear equally kind.

Trust game

The trust game is similar to the dictator game, but with an added first step. In the trust game, one participant first decides how much of an endowment to give to the second participant, and this amount is typically multiplied by the researchers. Then the second participant (now acting as a dictator) decides how much of this increased endowment to allocate to the first participant. Thus the dictator's partner must decide how much of the initial endowment to trust with the dictator (in the hopes of receiving the same amount or more in return). The experiments rarely end in the subgame perfect Nash equilibrium of "no trust". A pair of studies published in 2008 of identical and fraternal twins in the USA and Sweden suggests that behavior in this game is heritable.^[11]

References

^ Kahneman, Daniel, Jack L. Knetsch, and Richard H. Thaler. "Fairness And The Assumptions Of Economics." The Journal of Business 59.S4 (1986): S285.
^ Levitt, Steven and Stephen Dubner (2009). Superfreakonomics New York: William Morrow.
^ ^a ^b ^c Bardsley, Nicholas. (2005) "Altruism or artifact? A Note on Dictator Game Giving" CeDEx Discussion Paper No. 2005-10.
^ For example, Bolton, Katok, Zwick 1998, "Dictator game giving: Rules of fairness versus acts of kindness" International Journal of Game Theory 27:2 (Article Abstract). This paper includes a review of dictator games going back to 1994 (Forsythe R, Horowitz JL, Savin NE, Sefton M, 1994 Fairness in simple bargaining experiments. in Games and Economic Behavior). For an overview see Camerer, Colin (2003) Behavioral Game Theory Princeton University Press, Princeton.
^ Henrich, Joseph, Robert Boyd, Samuel Bowles, Colin Camerer, Ernst Fehr, and Herbert Gintis (2004) Foundations of Human Sociality: Economic Experiments and Ethnographic Evidence from Fifteen Small-Scale Societies. Oxford University Press.
^ Gummerum, M., Hanoch, Y., Keller, M., Parsons, K., & Hummel, A. (2010). Preschoolers’ allocations in the dictator game: The role of moral emotions. Journal of Economic Psychology, 31(1), 25–34.
^ Andreoni, J. and Miller, J. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism." Econometrica 70:2, 737-753.
^ Fowler JH, Kam CD "Beyond the Self: Altruism, Social Identity, and Political Participation," Journal of Politics 69 (3): 811-825 (August 2007)
^ Fowler JH. "Altruism and Turnout," Journal of Politics 68 (3): 674-683 (August 2006)
^ Hoffman Elizabeth, McCabe Kevin, Shachat Keith and Smith Vernon (1994) "Preferences, Property Rights, and Anonymity in Bargaining Games" Games and Economic Behavior 7(3): 346-380 and Bolton, Gary E., Elena Katok, and Rami Zwick (1998) "Dictator game giving: Rules of fairness versus acts of kindness" [1] International Journal of Game Theory 27:269-299.
^ Cesarini, David; Christopher T. Dawes; James H. Fowler; Magnus Johannesson; Paul Lichtenstein; Björn Wallace (11 March 2008). "Heritability of cooperative behavior in the trust game" (PDF). Proceedings of the National Academy of Sciences. 105 (10): 3721–3726. doi:10.1073/pnas.0710069105. PMC 2268795. PMID 18316737.

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