Levels of other-regarding preferences and the structure of the interaction

Abstract

The paper contributes to the literature on other-regarding preferences challenging the narrow self-interest assumption. Experimental evidence confirms that the same individuals might express different otherregarding preferences in different situations or contexts. The structure of their interaction, their relative positions in it might trigger different behavioral patterns. In this paper we propose a model of multi-level other-regarding preferences assuming that different levels are actualized depending on the context in which an individual has to take her decision. We analyze the experimental trust game letting the players have multi-level preferences. Under certain parameterization and asymmetric information assumption, we show that the share given up by the leader of the game in favor of the follower is strictly monotonically increasing with altruism of the former. It is also demonstrated that utilitarian social welfare is increasing with the leader’s altruism if the players are not extremely risk-averse. In the case when information for both players is incomplete, a separating equilibrium exists allowing to distinguish between leaders with different other-regarding preferences.