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Individual versus group behavior and the role of the decision making procedure in gift-exchange experiments

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Abstract

We test for behavioral differences between groups and individuals in gift-exchange experiments. Related studies in economics establish group behavior as often closer to the standard game-theoretic equilibrium under the assumptions of rationality and selfishness. We show that this result may depend crucially on the decision making procedure within groups and the nature of the task. A novel experimental decision making protocol opens the black box of group decision making and allows tracking important features of the group interaction process. We are also able to show that acting in a group may shift initial individual choices.

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Notes

  1. With unitary groups we denote groups that face no internal conflict in terms of payoff. By group decision we mean a single decision upon which all group members have agreed, finally.

  2. In order to comply with terminology in the related experimental literature, we adopt the following convention: When we use the terms “rationality” and “more rational behavior” we implicitly include the assumption of selfishness, henceforth, as it is also the case for standard traditional game-theory. Reference points from standard game theory, however, just serve as a benchmark for behavior in the following.

  3. See Kocher and Sutter (2005) for an overview of psychological taxonomies of tasks, which are relevant for group experiments.

  4. See Sect. 3 for details.

  5. The intellective characteristic is due to the necessity to understand the strategic nature of the game, whereas the judgmental characteristic arises from the need to think about the possible behavior of interaction partners.

  6. A noteworthy feature of their experimental design is that they consider also mixed treatments where groups bargain with individuals and vice versa.

  7. Studying behavior in a beauty-contest game, Kocher and Sutter (2005) find that individuals and groups do not differ in first round choices with respect to the depth of reasoning.

  8. Similar structures are used by Charness (2000) and Hannan et al. (2002). The basic idea is, nevertheless, the same in the bargaining as well as the market framework. Buyers have to make price offers without knowing the quality of the good they receive from those sellers who accept their price offers. In the market environment matching is accomplished by simple auction designs. In the bargaining framework matching follows from random pairing of subjects, and/or groups in our case.

  9. If f = 0 were also permissible, a selfish money maximizing decision maker would be indifferent between any value of w.

  10. Group members are only informed about the sum of ‘Yes’-votes for a given proposal, but they cannot link a group member’s proposal to her voting behavior.

  11. In case a group did not reach a unanimous agreement in the tenth round, all group members received only the show up fee. For the paired group, a randomly chosen parameter was then applied. However, it occurred only once that a group failed to reach a unanimous vote even after 10 rounds.

  12. Note that in the CG-treatment, full anonymity even within groups was strictly enforced.

  13. See the experimental instructions in the Appendix.

  14. We asked groups to speak with a low voice in their discussions and strictly forbad them to communicate with any other group.

  15. For a model that takes into account choice shift but is unfortunately not applicable to our context see Eliaz et al. (2006).

  16. Note that the rudimentary communication in the CG-treatment, of course, is no exchange of real arguments, but proposals of group members might be viewed as similar but less informative than arguments in the spirit of PAT.

  17. We do not take the overall median instead of the mean, because more cases would have to be excluded. The general picture would however remain the same by taking the median as the benchmark to distinguish between low and high initial proposals.

  18. 16 cases cannot be assigned, either because of the fact that the within group mean of first round proposals is the same as the overall mean or there is no difference between the first round mean and the approved decision. A single group did not reach a unanimous vote within 10 rounds of proposals and consecutive votes and also had to be excluded, therefore.

  19. See Sect. 5.5 for more information on efficiency.

  20. It seems rather likely that in our FG-treatment this feature of the gift-exchange game dominates choices, whereas it is not strong enough to raise choices with respect to w and f in the CG-treatment, because in the anonymity of the latter social values play a much smaller role in shaping decisions.

  21. This is calculated as follows: \({0.14\approx \frac{c(f=0.3)-c(f=0.2)}{(e-50)\ast 0.3-(e-50)\ast 0.2}=\frac{2-1}{21-14}=\frac{1}{7}}\) .

  22. Interestingly, the structure of the gift-exchange game with the widely used parameters we apply has it that being other-regarding has strictly decreasing marginal costs in terms of one’s own payoff with decreasing levels of \({w}\). Thus, it becomes relatively cheaper to be other-regarding as decision-maker in role B, when the decision of the player in role A is more selfish or, equivalently, closer to the game-theoretic prediction.

  23. This is, of course, a rather special case, but it has the advantage of partly opening the black box of the discussion and decision making process within the group, which has been neglected so far with the exception of a few audio- or video-taped experiments (e.g., Bosman et al., 2006; Henning-Schmidt 1999). Both approaches have its advantages and its disadvantages. Our design offers the opportunity to do straightforward quantitative analyses.

  24. Note that opportunity costs of time should not play a role for the speed of reaching an agreement, because subjects knew that they had to wait in any case until the last group reached a unanimous decision in the session before the experiment would proceed.

  25. Censoring is necessary because the dependent variable—the effort level—is bounded from below (f = 0.1) and from above (f = 1).

  26. This characteristic of group interaction has already been noticed by experiments in social psychology quite a while ago and termed the “discontinuity effect” by Insko and Schopler (see, for example, Insko et al. 1987, 1988 or Schopler and Insko 1992).

  27. Note that the only experiment so far that clearly does not comply with that reasoning remains Cason and Mui (1997).

  28. The instructions for the group treatments are available upon request from the authors.

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We would like to thank two anonymous referees as well as participants at the Western Economic Association Conference 2002, at the Royal Economic Society Meeting 2003, at the Verein für Socialpolitik Meeting 2003, at the Austrian Economic Association Meeting 2005 and seminar participants in Innsbruck and Jena for many helpful comments. Anke Jungwirth provided excellent research assistance. All remaining errors are ours, of course. Financial assistance by the Center for Experimental Economics at the University of Innsbruck (sponsored by the Raiffeisen Landesbank Tirol) and by the Austrian National Bank (Jubiläumsfonds-Projekt Nr. 9879) is gratefully acknowledged.

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Authors and Affiliations

  1. Department of Economics, Institute of Public Finance, University of Innsbruck, Universitätsstr. 15/4 A, Innsbruck, 6020, Austria

    Martin G. Kocher & Matthias Sutter

  2. University of Amsterdam, Amsterdam, Netherlands

    Martin G. Kocher

  3. University of Cologne, Köln, Germany

    Matthias Sutter

Authors
  1. Martin G. Kocher
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  2. Matthias Sutter
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Correspondence to Martin G. Kocher.

Appendix

Appendix

Instructions for I-treatment (originally in German) Footnote 28

Welcome at the experiment and thank you for your participation Please do not talk to other participants in the experiment from now on.

You are about to participate in an experimental study on decision making. You can ‘earn’ real money, which will be paid to you privately and confidentially in cash right after the end of the experiment. The following text will be framed neutrally with regard to gender to make it easier to read.

Show-up fee

The show-up fee is 20 ATS (Austrian Schillings). You receive this show-up fee regardless of the decisions in the experiment. It will be added to your earnings from the experiment right after the end of the experiment.

2 Types of participants

You will be assigned to a type (A or B) randomly, and pairs of A and B will be formed randomly as well. You will learn neither during the experiment nor afterwards, which participant you were paired with. Your decisions are completely anonymous.

Initial Endowment

Each participant of type A receives an initial endowment of 120 experimental points (EP).

2 Phases of the experiment

The experiment consists of two phases. In Phase 1 participants A take a decision, in Phase 2 participant B takes a decision. Hence, every participant takes only one decision. There are no further decisions and no repetitions.

Phase 1: Participant A chooses a transfer

Participant A has to choose a transfer w. This transfer determines how many experimental points of the initial endowment of participant A is transferred to participant B after Phase 1. The transfer chosen by participant A must be between 10 and 100 and can only be determined in steps of 10. This means that only the values 10, 20, 30, 40, 50, 60, 70, 80, 90 and 100 are feasible.

Phase 2: Participant B chooses a factor

The participant B, which is paired with the according participant A, is informed about the transfer. Participant B now decides on a factor f. The factor f must come from the range 0.1 to 1.0 and can only be determined in steps of 0.1.

The factor f is important for the payoff of participant A. It however causes also costs c(f) for participant B according to Table 1. The higher the chosen factor, the higher the costs for participant B.

Table 1 Factor f and costs c(f) for participant B
Full size table

Results and earnings

The result in experimental points after the two phases is the following:

For determining the result of participant A his or her initial endowment (120 EP), the chosen transfer w and the factor f that is chosen by participant B are relevant. To arrive at the resulting experimental points, the difference between the initial endowment and the transfer has to be multiplied by the factor. Mathematically,

$$ \hbox{{\bf Result (participant A in experimental points)}}=({\bf 120}-{\bf w})\cdot{\bf f} $$

For the result of participant B the transfer from participant A and the cost of the chosen factor f are relevant. To arrive at the resulting experimental points, one has to calculate the difference between the transfer w and the costs c(f)

$$ \hbox{{\bf Result (participant B in experimental points)}} = {\bf w} - {\bf c(f)} $$

The result in points will be converted to ATS (Austrian Schillings). The conversion rate is 1:4, which means

$$ {\bf 1 point} = {\bf 4 Schilling} $$

Total earnings of every participant consist of the results converted to ATS and the show-up fee.

Summary

Participant A chooses in Phase 1 a transfer between 10 and 100. Participant B will be informed about this transfer before Phase 2.

Participant B chooses in Phase 2 a factor f between 0.1 and 1.0. A factor is associated with costs c(f) according to Table 1.

The result of participant A depends on the chosen transfer and the factor that is determined by participant B. The result of participant B depends on the transfer from participant A and the costs of the chosen factor.

Means of help

At your place you find a pen and a calculator. Please do not take them with you after the experiment.

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Kocher, M.G., Sutter, M. Individual versus group behavior and the role of the decision making procedure in gift-exchange experiments. Empirica 34, 63–88 (2007). https://doi.org/10.1007/s10663-006-9026-8

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