Giving in dictator games: regard for others or regard by others?

Koch, Alexander K. ; Normann, Hans-Theo

1. Introduction

Experimental studies have challenged the notion that human behavior can be well approximated with models assuming narrow self-interest. Strong evidence for other-regarding behavior comes from dictator game experiments (Kahneman, Knetsch, and Thaler 1986; Forsythe et al. 1994). One player (dictator) decides how to allocate an amount of money between himself and a passive player (receiver). Narrow self-interest would call for the dictator to keep the entire amount, leaving the receiver with nothing. Forsythe et al. (1994) find that 70% of the dictators actually do not grab the entire pie for themselves, leaving the receiver with on average 24% of the total amount. Similar patterns have been documented in many different dictator game settings (see, e.g., the survey of Camerer 2003).

But what is the source of seemingly altruistic behavior? The two fundamental views on this ancient question are pitted against each other in Plato's (360 BC) Republic. Glaucon claims that "[...] a man is just, not willingly or because he thinks that justice is any good to him individually, but of necessity, for whenever any one thinks that he can safely be unjust, there he is unjust." He illustrates this with the tale of the shepherd Gyges, who finds a ring that enables him to become invisible and act unjustly without anybody ever knowing. His brother Adeimantus concurs, saying that otherwise "[...] we should not have been on the watch to keep one another from doing wrong, but every one would have been his own watchman" (Book II). In contrast, Socrates claims that an individual who acts just for its own sake rather than for its appearance is truly serving his own interest, justice being concerned "[...] not with the ontward man, but with the inward [...]" (Book IV).

This paper looks into whether external forces--concerns for the "outward man"--are needed to motivate dictator giving or whether internal mechanisms--concerns for the "inward man"--underly such behavior. It has been argued that giving in dictator games might arise from a desire of subjects to appear to be acting in a socially appropriate way because their individual behavior is observed by others. Hoffman et al. (1994, p. 349) suggest that "fairness" may not be "'own' preference, but a derivative of judgement by others." Because subjects' behavior might also be influenced by expectations about the experimenter's judgement. Hoffman et al. (1994), and Hoffman, McCabe, and Smith (1996) run a double-blind treatment (DB1) to ensure that the experimenter cannot personally attribute subjects' decisions. Incidence of positive offers (36% of dictators) and average donations (9.2% of pie) drop significantly relative to Forsythe et al. (1994). This vindicates Glaucon and Adeimantus' view that external enforcement of norms is important. Reducing observability of actions along the dimension of increasing anonymity leads to less seemingly other-regarding behavior. (1)

Nevertheless, 36% of the dictators in the DB1 experiment still donate some money (mean gift 25% of the pie). Does this imply that these subjects have pure other-regarding preferences? Hoffman et al. (1994, p. 371) argue that the DB1 results "may approach the appropriate indicator of fairness as a pure preference phenomenon." However, there is another dimension of observability. Giving by a dictator might not be driven by true regard for the receiver's welfare but rather stem from a desire to avoid that the receiver discovers the deed of violating a social norm (rather than the perpetrator as an identifiable individual). Then, even in completely anonymous settings, regard by others would still serve as an external enforcement device of norms.

Recent bargaining experiments provide some evidence that an important driving force in seemingly altruistic behavior is whether or not the responder can observe a proposer's action. Introducing an information asymmetry about the pie size to be divided by the proposer, the typical finding is that subjects are concerned about being perceived by others as abiding by social norms (even under intersubject anonymity) but otherwise exploit their informational advantage in a selfish way. (2) Guth, Huck, and Ockenfels (1996, p. 597) conclude that "complying--at least superficially--with a (fairness) norm has some intriusic value: you feel better when others do not know how greedy you are."

Dana, Cain, and Dawes (2006) investigate the dimension of receiver knowledge in a dictator game setting without introducing experimenter anonymity. After dictators have made their allocation decision they are given an exit option. If the option is chosen, the dictator gets $9 and the receiver gets nothing but remains ignorant of the game. If the exit option is not chosen, the receiver gets his part of the $10 pie, along with the dictator's instructions (treatment 1) or without becoming aware of the game (treatment 2). The pre-exit option pattern in treatment 1 replicates the Forsythe et al. (1994) results: 70% of dictators offer more than nothing, receivers get 25% of the pie on average. The exit option is chosen by 33% of subjects, bringing down the incidence of positive dictator offers actually carried out to 43% (receivers in the experiment get 15% of the pie on average). This is close to the levels in the Hoffman et al. (1994), and Hoffman, McCabe, and Smith (1996) double-blind treatment (DB1) experiment (36% positive offers, the average receiver share is 9.2% of the pie).

In sum, eliminating only one of the two dimensions of external enforcement of norms, regard by the receivers (Dana, Cain, and Dawes 2006) or regard by the experimenter (the Hoffman et al. [1994], and Hoffman, McCabe, and Smith [1996] double-blind procedure), appears to affect subject behavior to a similar extent. Our contribution is to test for the importance of receiver knowledge in the absence of the second dimension of external enforcement of norms. The experiment therefore eliminates reputational and other strategic considerations with a design that guarantees experimenter anonymity and precludes any possibility of future interaction between dictators and receivers. Paraphrasing Adeimantus, we ask to what extent individuals are effective in policing themselves in completely anonymous situations. Or put differently, does it matter for an individual in a completely anonymous setting that those affected by his or her actions are able to assess whether these actions conform to established social norms or not?

The treatments vary the information that receivers have. The A ware Receiver (AR) treatment provides receivers with the dictator game instructions. Common knowledge of the game enables receivers to become aware of being treated kindly or unkindly by the dictators. Such knowledge by receivers is crucial for external enforcement to be effective. In contrast, it is irrelevant for dictator behavior if pure other-regarding preferences (or any other internal mechanisms) are at work. Therefore, we compare behavior with that in the Unaware Receiver (UR) treatment, which provides no information to receivers about the source of dictator offers. In fact, receivers do not even know that they participate in an experiment. In all treatments, we control for experimenter anonymity by implementing the Hoffman et al. (1994), and Hoffman, McCabe, and Smith (1996) procedure. To remove any possibility for future interaction between dictators and receivers, receivers are randomly selected from UK phone directories to receive the dictators' offers via mail.

Related to our experiment is a study of social distance in dictator games by Johannesson and Persson (2000). They compare a standard Hoffman et al. (1994, 1996) double-blind treatment, in which both dictators and receivers are students, with one in which the receivers are randomly drawn from the Swedish population. In this latter treatment, dictators' offers are mailed out together with the instructions. Johannesson and Persson (2000) find no significant differences between their treatments. In contrast to our study, receivers always receive the instructions together with the dictators' offers--unless the offer is zero (in which case, in their experiment, nothing is mailed out). Moreover, dictators choose from a different set of possible allocations. (3)

2. Experimental Design and Procedures

All experimental treatments follow the standard Hoffman et al. (1994), and Hoffman, McCabe, and Smith (1996) procedure to guarantee experimenter anonymity, and instructions are kept as close as possible to the original ones (see Appendix). In the AR treatment, each receiver gets the instructions for the experiment along with the dictator's offer. This corresponds to the standard dictator game setting and serves as a control treatment. In the UR treatment, each receiver gets only the dictator's offer without any indication where it came from. The receiver is even unaware of taking part in an experiment.

It is crucial for our experiment to exclude any possibility for future interaction between dictator subjects and receivers and thereby guarantee that the differential information treatments are credible. Therefore, instead of using laboratory subjects, receivers are randomly selected from UK phone directories to get by post an envelope containing the dictator's offer.

Each session has 15 subjects who receive a show-up fee of 5 [pounds sterling] upon arrival and take a seat in separate cubicles in the experimental lab, where a set of instructions is provided. Subjects are asked to remain quiet during the session, instructions are read out loud, and any questions are answered. Then subjects draw a ballot to determine the monitor, who verifies that the instructions are carried out to the letter and receives an additional 10 [pounds sterling] for this. (4) The monitor randomly distributes 14 unmarked envelopes and retires to the back of the lab with the experimenters. Twelve envelopes contain ten 1 [pounds sterling] coins and ten metal discs of corresponding size and weight, two envelopes contain only 20 metal discs. (5) Subjects tear open these envelopes and then decide how much money to place in the return envelope provided in their cubicle. They are instructed to return a total of 10 coins/metal discs, seal the envelope, and place the remaining 10 coins/discs in an identical envelope marked "Take this envelope with you." (6) Subjects leave in an order that guarantees each individual privacy for his or her decision. When leaving, subjects place the return envelope in a box next to the exit and take the other envelope with them. After all subjects leave, the monitor opens the return envelopes, records their contents, removes the discs, and places only the coins returned (if any) in a preaddressed envelope. Finally, the monitor and experimenter go to the nearest mailbox and post the 14 letters.

The 14 receivers in the UR treatment are unaware of being part of an experiment and do not know that some other person decided to allocate from a total of 10 [pounds sterling] to him or her the amount found in the envelope. In contrast, in the AR treatment, receivers become aware of the fact that somebody else has decided to be kind to them or has acted selfishly. Therefore, if dictator giving is (partially) motivated by external enforcement of social norms, there should be a higher fraction of people giving money and a higher average share of the pie for receivers under the AR treatment than under the UR treatment. Otherwise, if dictator giving is purely driven by internal mechanisms, there should be no behavioral differences between the AR and UR treatments.

All experiments were conducted in the Experimental Lab of Royal Holloway College, University of London, in March and May 2005. We ran three sessions for each treatment to generate 36 independent dictator observations per treatment (since in each session, two dictator subjects received no money to distribute), recruiting subjects from all discipline areas of the university (of the 42 nonmonitor subjects, eight in AR and six in UR had economics majors or minors, respectively).

[FIGURE 1 OMITTED]

3. Results

In the AR treatment, the number of people who kept the entire endowment was 21 (58%), and receivers got 10.3% of the pie on average. In the UR treatment, the number of people who kept the entire endowment was 23 (64%), and the average share for the receivers was 9.4%. These results are virtually identical and a chi-square test, on the basis of the proportion of people who give zero and the proportion of people who give a positive amount, unsurprisingly, yields no significant differences between treatments ([chi square] = 0.23, d.f. = 1, p > 0.5).

Figure 1 shows the cumulative distribution of dictators' choices. Again, AR and UR are rather similar and a Kolmogorov-Smirnov test finds no significant differences between distributions (Z = 0.281, p = 0.86). These results reject the hypothesis that external enforcement matters.

Figure 1 also reveals that there are no obvious differences between our treatments and the results in Hoffman et al. (1994), and Hoffman, McCabe, and Smith (1996). In DB1, 23 subjects (64%) kept the whole money endowment and 9.2% was given to receivers on average. Both of our treatments are very similar to these results, and differences are not statistically significant. We conclude for the control treatment part of the experiment that our AR double-blind procedure replicates the DB1 results and therefore is also consistent with Johannesson and Persson's (2000) results.

The result that the UR and AR treatments do not differ provides evidence that social norms can be effectively sustained by internal mechanisms. More than one third of the dictators gave positive amounts, and these subjects offered 25% of the pie on average. Moreover, in the UR treatment, three of the 36 subjects gave 40% or 50% of their endowment. This replicates both the Hoffman et al. (1994), and Hoffman, McCabe, and Smith (1996) DB1 (3/36) treatments and our AR (4/36) treatments. Because this frequency does not change across our treatments, it suggests that such dictators might have truly other-regarding preferences. Suppose subjects felt that fairness norms call for dictators to give 50%. In the AR treatment, receivers can immediately verify compliance with such a norm. In contrast, in the UR treatment, receivers are completely unaware of the pie size and thus have no obvious reference point against which to judge the offer. Hence, an external motivation for not violating this norm has no bite. If dictators still give half of the endowment, we can presume that this decision is consistent with their true preferences.

We finally discuss whether our procedures might have biased the results. We kept very closely to the Hoffman et al. (1994), and Hoffman, McCabe, and Smith (1996) design and instructions. In our experiments, there was no evidence that dictators gave money as a result of an error. Typically, no questions were asked, and even fine points in the instructions appeared to have been understood by all. For example, without exception, subjects returned a total of 10 coins/metal discs in their envelope, as instructed. Moreover, we took extreme care in avoiding credibility of design issues (Frohlich, Oppenheimer, and Moore 2001) by selecting the monitor publicly (see footnote 4) and ensuring complete privacy of decisions through the use of separated cubicles and padded envelopes. A caveat, however, is the possibility of a residual influence on dictator behavior in the UR treatment because the anonymous offers are observed by the monitor and the experimenter. (7)

4. Discussion and Conclusion

Recent experiments on dictator and ultimatum games have demonstrated a substantial effect of anonymity and incomplete information on subjects' behavior. This has rekindled the question of whether we follow social norms because we truly care for others or because we are worried about the regard by others.

The experiment reported in this paper addresses the issue of whether giving in completely anonymous dictator games is internally motivated or whether external pressure helps enforce social norms. To this end, we remove a crucial element of observability of the dictators' actions; receivers do not learn about the experimental instructions and, in fact, do not even know they participate in an experiment. Moreover, we guarantee credibility of the one-shot nature of the game and the informational treatments by eliminating, through an anonymous mail-out scheme, any possibility for future interaction between dictators and receivers.

In both treatments, roughly one third of the dictator subjects give positive amounts, leaving the receivers with around 10% of the pie (as in the Hoffman et al. [1994], and Hoffman, McCabe, and Smith [1996] DB1 experiment). Once complete anonymity is assured, it does not matter for dictator behavior whether receivers are aware of being treated kindly or unkindly.

This puts into perspective recent bargaining experiments, which show that subjects tend to exploit information asymmetries to engage in more selfish behavior when this does not become apparent to other subjects. The fact that information about the game provided to receivers has no impact in our completely anonymous setting suggests that those dictators who give are not driven by external pressure but are internally motivated to do so. These internal mechanisms include pure regard for others (as stipulated in models of other-regarding preferences), a warm glow of decision making (Andreoni 1989), a desire to maintain a positive self impression (Murnighan, Oesch, and Pillutla 2001), or a desire to avoid feelings of guilt. The latter point has been succinctly framed by Kandel and Lazear (1992, p. 806) in the context of sustaining work norms via peer pressure: (8) "Guilt is internal pressure, whereas shame is external pressure. In the context of the firm, the important issue is observability. A worker feels shame when others can observe his actions. Without observability, only guilt can be an effective form of pressure."

Our experimental results suggest that perceptions by receivers in a dictator game do not matter when there is complete anonymity. This complements the experiments by Hoffman et al. (1994), and Hoffman, McCabe, and Smith (1996), and Dana, Cain, and Dawes (2006), who show that eliminating only one of the two dimensions of external enforcement of norms, regard by the receivers or regard by the experimenter, reduces the incidence of dictator giving by roughly half. Overall, these experiments and our results suggest that about half of dictator giving observed in standard experiments with exogenously given pie size (9) is internally motivated, and the other half is driven by external factors such as experimenter observability or regard by receivers.

From this we conclude that social behavior can be partially explained by models based on preferences that are purely internal (as captured, e.g., by other-regarding preferences). However, a significant part of such behavior appears to be driven by the influence of external enforcement of social norms. This underscores the importance of recent theoretical work on modeling games in which players' utilities depend on the beliefs held by others in the form of "psychological payoffs" (e.g., Geanakoplos, Pearce, and Stacchetti 1989; Battigalli and Dufwenberg 2005; Dillenberger and Sadowski 2006).

Appendix: Instructions

You have been asked to participate in an economics experiment. For your participation today we have paid you 5 [pounds sterling] in cash. You may earn an additional amount of money in cash.

We ask you to remain silent during the entire experiment; if you have any questions, please raise your hand.

In this experiment each of you will be paired with a person whose address was randomly selected from the BT phone directories for the UK. You will not be told who that person is either during or after the experiment, and he or she will not be told who you are.

You will notice that there are other people in the same room with you who are also participating in this experiment. You will not be paired with any of these people.

One of the persons in this room will be chosen to be the monitor for today's experiment. The monitor will be paid 10 [pounds sterling] in addition to the 5 [pounds sterling] already paid. The monitor will be in charge of the envelopes explained below. In addition, the monitor will verify that the instructions have been followed as they appear here.

The experiment is conducted as follows: Fourteen unmarked envelopes have been placed in a box. Twelve of these envelopes contain 10 1 [pounds sterling] pound coins and 10 metal discs. The remaining two envelopes contain 20 metal discs. The monitor will hand each person in the room one of these sealed filled envelopes. The person will then open the envelope privately inside the cubicle. Only the person who was given the envelope will know what the envelope contains.

Each person in this room will find inside the cubicle two empty padded envelopes, one of which is unmarked and the other is marked "Take this envelope with you." Each person must decide how many coins (if any) and how many discs to put into the unmarked padded envelope. The number of coins plus the number of discs must add up to 10. The person then puts the remaining coins and discs into the envelope marked "Take this envelope with you."

Examples:

1. Put 2 [pounds sterling] and 8 discs into the unmarked padded envelope, put the remaining 8 [pounds sterling] and 2 discs into the other padded envelope.

2. Put 9 [pounds sterling] and 1 disc into the unmarked padded envelope, put the remaining 1 [pounds sterling] and 9 discs into the other padded envelope.

These are examples only, the actual decision is up to each person.

If the envelope handed out by the monitor has 20 discs, put l0 discs into the unmarked padded envelope and the other 10 into the other padded envelope.

This is done in private and we ask that you tell no one of your decision. Notice that each unmarked padded envelope returned will look exactly the same. Also note that no one else, including the experimenter, will know the personal decisions of the people in this room.

Once you have made your decision you will seal your unmarked padded envelope. When called upon, leave the cubicle, place it in the box marked "return envelopes" and then leave the room taking along with you the envelope marked "Take this envelope with you."

After all 14 unmarked padded envelopes have been returned, the monitor will be given another box. This box is marked "addresses" and contains 14 envelopes with a stamp. Each of these envelopes has the address of a person randomly selected from the BT phone directories for the UK. This person does not know anything about the experiment. In fact, this person does not even know that he or she is participating in an experiment. He or she will simply receive the envelope without any explanation and without any indication where the envelope comes from. The person will be sent a copy of these instructions but no further explanation. [AR treatment] There will be no return address and your identity will remain anonymous.

The monitor will then choose one envelope from the box with "return envelopes" and record its content. The monitor will put the money from this envelope into the envelope from the box "addresses" and seal it. Each addressed envelope will contain only the amount of money found in the return envelope (that is, 0 [pounds sterling] to 10 [pounds sterling]), without any explanation [UR treatment] and a copy of these instructions [AR treatment]. The monitor will continue until all the envelopes have been opened. The monitor will then take the 14 sealed envelopes and together with the experimenter, go to the closest mailbox and mail the envelopes. The experiment is then over.

For today's experiment, you will not have to sign a receipt for the money you received.

We thank Dirk Engelmann, Armin Falk, Ernst Fehr, Uri Gneezy and two anonymous referees for comments.

Received February 2007; accepted May 2007.

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(1) Dictator giving tends to increase when adding an additional observer (Cason and Mui 1997, 1998) or visual cues in the form of stylized eyes that suggest being observed (Haley and Fessler 2005) and weakening anonymity across subjects (e.g., Bohnet and Frey 1999a, b; Frohlich, Oppenheimer, and Moore 2001; Burnham 2003). Similarly, information that the receiver is deserving of aid increases dictators' offers (Eckel and Grossman 1996). However, Bolton, Zwick, and Katok (1998) find no significant experimenter anonymity effect.

(2) See Mitzkewitz and Nagel (1993); Pillutla and Murnighan (1995); Straub and Murnighan (1995); Croson (1996); Guth, Huck, and Ockenfels (1996); Kagel, Kim, and Moser (1996); Rapoport and Sundali (1996); Rapoport, Sundali, and Seale (1996); Guth and Huck (1997); and Kritikos and Bolle (2002). Further evidence against intrinsic benefits from giving is that charities often receive donations just sufficient to enter a publicized higher prestige donor category (Harbaugh 1998), possibly because of concerns for direct or indirect reciprocity (Engelmann and Fischbacher 2003).

(3) Dictators could choose to give 0, 20, 40, 60, 80, or 100 Swedish kroners, excluding the possibility of an equal split.

(4) We use such a ballot to convince subjects that we did not place a stooge among them who is then selected as monitor.

(5) This guarantees that even if all subjects provided with coins return no money, the individual subjects' decisions will not become known (Hoffman et al. 1994; Hoffman, McCabe, and Smith 1996).

(6) Both envelopes are padded so that it is impossible to tell apart by looking at them an envelope filled with 10 coins/discs even from an unfilled one.

(7) To completely eliminate any possible external motivations, the experimenter would have to discreetly observe an unaware dictator. This presents an obstacle that cannot be overcome: Someone must enforce the rules of the game, and that someone is always a source of regard by others. We are grateful to an anonymous referee for pointing this out.

(8) These concepts of guilt and shame are borrowed from sociology and have also been used by psychologists (e.g., Gehm and Scherer 1988, p. 74). It should be noted though that they contrast with Lewis' (1971) reconceptualization of these terms, which psychologists often follow (e.g., Tanguey and Dearing 2002).

(9) An entitlement effect comes into play when adding "earned" income to a dictator game setting. If the pie is earned by own effort of the dictator, offers to receivers are typically almost all zero (Cherry, Frykblom, and Shogren 2002; Oxoby and Spraggon 2008). If the pie is earned by the effort of the receiver and then allocated by the dictator, the setting corresponds to a trust game (Berg, Dickhaut, and McCabe 1995). Dictator giving then appears to be driven by reciprocity: the bigger the pie, the bigger the proportion allocated to the receiver--often more than half (Ruffle 1998; Oxoby and Spraggon 2008).

Alexander K. Koch * and Hans-Theo Normann ([dagger])

* Royal Holloway, University of London, and IZA (Institute for the Study of Labor), Royal Holloway College, University of London, Department of Economics, Egham TW20 0EX, UK; E-mail Alexander.Koch@rhul.ac.uk; corresponding author.

([dagger]) Royal Holloway College, University of London, Department of Economics, Egham TW20 0EX, UK; E-mail Hans.Normann@rhul.ac.uk.