On the difference between social and private goods

Alvaro Sandroni*, Sandra Ludwig, Philipp Kircher

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

Standard economic models have long been applied to choices over private consumption goods, but have recently been extended to incorporate social situations as well. We challenge the applicability of standard decision-theoretic models to social settings. In an experiment where choices affect the payoffs of someone else, we find that a large fraction of subjects prefer randomization over any of the deterministic outcomes. This tendency prevails whether the other party knows about the choice situation or not. Such randomization violates standard decision theory axioms that require that lotteries are never better than their best deterministic component. For conceptually similar choices in classical non-social situations, we do not find much evidence for such violations, suggesting the need for theories of uncertainty that are targeted to social settings.

Original languageEnglish (US)
Pages (from-to)151-177
Number of pages27
JournalB.E. Journal of Theoretical Economics
Volume13
Issue number1
DOIs
StatePublished - May 8 2013

Keywords

  • betweenness axiom
  • preference for randomness
  • risky choice
  • social preferences

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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