A Neural Trait Approach to Exploring Individual Differences in Social Preferences

Research demonstrates that social preferences are characterized by significant individual differences. An important question, often overlooked, is from where do these individual differences originate? And what are the processes that underlie such differences? In this paper, we outline the neural trait approach to uncovering sources of individual differences in social preferences, particularly as evidenced in economic games. We focus on two primary methods—resting-state electroencephalography and structural magnetic resonance imaging—used by researchers to quantify task-independent, brain-based characteristics that are stable over time. We review research that has employed these methods to investigate social preferences with an emphasis on a key psychological process in social decision-making; namely, self-control. We then highlight future opportunities for the neural trait approach in cutting-edge decision-making research. Finally, we explore the debate about self-control in social decision-making and the potential role neural trait research could play in this issue.

Interactions between dorsolateral and ventromedial prefrontal cortex underlie context-dependent stimulus valuation in goal-directed choice.

External circumstances and internal bodily states often change and require organisms to flexibly adapt valuation processes to select the optimal action in a given context. Here, we investigate the neurobiology of context-dependent valuation in 22 human subjects using functional magnetic resonance imaging. Subjects made binary choices between visual stimuli with three attributes (shape, color, and pattern) that were associated with monetary values. Context changes required subjects to deviate from the default shape valuation and to integrate a second attribute in order to comply with the goal to maximize rewards. Critically, this binary choice task did not involve any conflict between opposing monetary, temporal, or social preferences. We tested the hypothesis that interactions between regions of dorsolateral and ventromedial prefrontal cortex (dlPFC; vmPFC) implicated in self-control choices would also underlie the more general function of context-dependent valuation. Consistent with this idea, we found that the degree to which stimulus attributes were reflected in vmPFC activity varied as a function of context. In addition, activity in dlPFC increased when context changes required a reweighting of stimulus attribute values. Moreover, the strength of the functional connectivity between dlPFC and vmPFC was associated with the degree of context-specific attribute valuation in vmPFC at the time of choice. Our findings suggest that functional interactions between dlPFC and vmPFC are a key aspect of context-dependent valuation and that the role of this network during choices that require self-control to adjudicate between competing outcome preferences is a specific application of this more general neural mechanism.

Bargaining for power and information : an experimental and theoretical analysis of the interaction between institutions, externalities and adverse selection

Bargaining is the building block of many economic interactions, ranging from bilateral to multilateral encounters and from situations in which the actors are individuals to negotiations between firms or countries. In all these settings, economists have been intrigued for a long time by the fact that some projects, trades or agreements are not realized even though they are mutually beneficial. On the one hand, this has been explained by incomplete information. A firm may not be willing to offer a wage that is acceptable to a qualified worker, because it knows that there are also unqualified workers and cannot distinguish between the two types. This phenomenon is known as adverse selection. On the other hand, it has been argued that even with complete information, the presence of externalities may impede efficient outcomes. To see this, consider the example of climate change. If a subset of countries agrees to curb emissions, non-participant regions benefit from the signatories’ efforts without incurring costs. These free riding opportunities give rise to incentives to strategically improve ones bargaining power that work against the formation of a global agreement. This thesis is concerned with extending our understanding of both factors, adverse selection and externalities. The findings are based on empirical evidence from original laboratory experiments as well as game theoretic modeling. On a very general note, it is demonstrated that the institutions through which agents interact matter to a large extent. Insights are provided about which institutions we should expect to perform better than others, at least in terms of aggregate welfare. Chapters 1 and 2 focus on the problem of adverse selection. Effective operation of markets and other institutions often depends on good information transmission properties. In terms of the example introduced above, a firm is only willing to offer high wages if it receives enough positive signals about the worker’s quality during the application and wage bargaining process. In Chapter 1, it will be shown that repeated interaction coupled with time costs facilitates information transmission. By making the wage bargaining process costly for the worker, the firm is able to obtain more accurate information about the worker’s type. The cost could be pure time cost from delaying agreement or cost of effort arising from a multi-step interviewing process. In Chapter 2, I abstract from time cost and show that communication can play a similar role. The simple fact that a worker states to be of high quality may be informative. In Chapter 3, the focus is on a different source of inefficiency. Agents strive for bargaining power and thus may be motivated by incentives that are at odds with the socially efficient outcome. I have already mentioned the example of climate change. Other examples are coalitions within committees that are formed to secure voting power to block outcomes or groups that commit to different technological standards although a single standard would be optimal (e.g. the format war between HD and BlueRay). It will be shown that such inefficiencies are directly linked to the presence of externalities and a certain degree of irreversibility in actions. I now discuss the three articles in more detail. In Chapter 1, Olivier Bochet and I study a simple bilateral bargaining institution that eliminates trade failures arising from incomplete information. In this setting, a buyer makes offers to a seller in order to acquire a good. Whenever an offer is rejected by the seller, the buyer may submit a further offer. Bargaining is costly, because both parties suffer a (small) time cost after any rejection. The difficulties arise, because the good can be of low or high quality and the quality of the good is only known to the seller. Indeed, without the possibility to make repeated offers, it is too risky for the buyer to offer prices that allow for trade of high quality goods. When allowing for repeated offers, however, at equilibrium both types of goods trade with probability one. We provide an experimental test of these predictions. Buyers gather information about sellers using specific price offers and rates of trade are high, much as the model’s qualitative predictions. We also observe a persistent over-delay before trade occurs, and this mitigates efficiency substantially. Possible channels for over-delay are identified in the form of two behavioral assumptions missing from the standard model, loss aversion (buyers) and haggling (sellers), which reconcile the data with the theoretical predictions. Chapter 2 also studies adverse selection, but interaction between buyers and sellers now takes place within a market rather than isolated pairs. Remarkably, in a market it suffices to let agents communicate in a very simple manner to mitigate trade failures. The key insight is that better informed agents (sellers) are willing to truthfully reveal their private information, because by doing so they are able to reduce search frictions and attract more buyers. Behavior observed in the experimental sessions closely follows the theoretical predictions. As a consequence, costless and non-binding communication (cheap talk) significantly raises rates of trade and welfare. Previous experiments have documented that cheap talk alleviates inefficiencies due to asymmetric information. These findings are explained by pro-social preferences and lie aversion. I use appropriate control treatments to show that such consideration play only a minor role in our market. Instead, the experiment highlights the ability to organize markets as a new channel through which communication can facilitate trade in the presence of private information. In Chapter 3, I theoretically explore coalition formation via multilateral bargaining under complete information. The environment studied is extremely rich in the sense that the model allows for all kinds of externalities. This is achieved by using so-called partition functions, which pin down a coalitional worth for each possible coalition in each possible coalition structure. It is found that although binding agreements can be written, efficiency is not guaranteed, because the negotiation process is inherently non-cooperative. The prospects of cooperation are shown to crucially depend on i) the degree to which players can renegotiate and gradually build up agreements and ii) the absence of a certain type of externalities that can loosely be described as incentives to free ride. Moreover, the willingness to concede bargaining power is identified as a novel reason for gradualism. Another key contribution of the study is that it identifies a strong connection between the Core, one of the most important concepts in cooperative game theory, and the set of environments for which efficiency is attained even without renegotiation.

Time Preferences and Environmental Concern: An Analysis of the Swiss ISSP 2010

This study analyzes the trend of environmental concern in Switzerland using data from the International Social Survey Program (ISSP) 1993, 2000, and 2010. First, we compare the observed trend with indicators of the intensity of public debate regarding the environment. The results show that both the number of articles dealing with environmental issues in print newspapers and the debates in the Swiss parliament strongly increased during the observed period. The ecological awareness of the population, however, remained constant over this time. Second, we scrutinize the "social basis" of environmental concern paying particular attention to individuals' time preferences. Third, we investigate the relationship between environmental concern and proenvironmental behavior, on the one hand, and the relation of concern and the acceptance of governmental regulations, on the other hand.

Investigating the value of privacy on online social networks: conjoint analysis

Popularity of Online Social Networks has been recently overshadowed by the privacy problems they pose. Users are getting increasingly vigilant concerning information they disclose and are strongly opposing the use of their information for commercial purposes. Nevertheless, as long as the network is offered to users for free, providers have little choice but to generate revenue through personalized advertising to remain financially viable. Our study empirically investigates the ways out of this deadlock. Using conjoint analysis we find that privacy is indeed important for users. We identify three groups of users with different utility patterns: Unconcerned Socializers, Control-conscious Socializers and Privacy-concerned. Our results provide relevant insights into how network providers can capitalize on different user preferences by specifically addressing the needs of distinct groups in the form of various premium accounts. Overall, our study is the first attempt to assess the value of privacy in monetary terms in this context.

The changing values of children and preferences regarding family size in south Africa

This study extends the ongoing studies on values of children and intergenerational relations into an African context with the following key questions: To what extent can the structure of values of children (VOC) identified in previous studies be found in South Africa and what are women's preferences regarding the size of small, large, and ideal families? The sample consisted of three cohorts of Black South African women from the Limpopo Province. Factor analyses showed that the dimensions of VOC found in South Africa are a conglomeration of different values. Identified dimensions were Social/Emotional and Traditional/Utilitarian with respect to reasons for wanting children. Regarding reasons for not wanting children, Child as Source of Constraints and Constraints to Have a Child were identified. Intergenerational comparisons showed variations in the importance of value of children dimensions and in preferences regarding family size. Values of children of younger mothers were related to the number of children these women had and to their preferences regarding family size. The findings are discussed within the changing socio-political context of South Africa.

Giving According to Preferences: Decision-Making in the Group Dictator Game

We study the decision process in a group dictator game in which three subjects can distribute an initial endowment between themselves and a group of recipients. The experiment consists of two stages; first, individuals play a standard dictator game. Second, individuals are randomly matched into groups of three and communicate via instant messaging regarding the decision in the group dictator game. In contrast to former studies our results show that group decisions do not differ from individual decisions in the dictator game. Furthermore, the analysis of the chat history reveals that players make proposals according to their preferences as revealed in the single dictator game and that these proposals in groups drive the final allocation.

Neural correlates of anticipation risk reflect risk preferences

Individual risk preferences have a large influence on decisions, such as financial investments, career and health choices, or gambling. Decision making under risk has been studied both behaviorally and on a neural level. It remains unclear, however, how risk attitudes are encoded and integrated with choice. Here, we investigate how risk preferences are reflected in neural regions known to process risk. We collected functional magnetic resonance images of 56 human subjects during a gambling task (Preuschoff et al., 2006). Subjects were grouped into risk averters and risk seekers according to the risk preferences they revealed in a separate lottery task. We found that during the anticipation of high-risk gambles, risk averters show stronger responses in ventral striatum and anterior insula compared to risk seekers. In addition, risk prediction error signals in anterior insula, inferior frontal gyrus, and anterior cingulate indicate that risk averters do not dissociate properly between gambles that are more or less risky than expected. We suggest this may result in a general overestimation of prospective risk and lead to risk avoidance behavior. This is the first study to show that behavioral risk preferences are reflected in the passive evaluation of risky situations. The results have implications on public policies in the financial and health domain.

Using Factorial Surveys and Stated Choice Experiments to Investigate Discriminatory Attitudes and Preferences

Empirical research on discriminatory attitudes and behaviour grapples with the social undesirability of its object. In many studies using regular survey methods, estimates are biased, and the social context of discrimination is not taken into account. Several methods have been developed, especially to deal with the first problem. In this regard, the estimation of the ‘true value’ of discriminatory attitudes is at the centre of interest. However, methodological contributions focusing on the social context of attitude communication and discriminatory behaviour, as well as the correlation between both, are rare. We present two experimental methods which address those issues: factorial surveys and stated choice experiments. In a first study, the usefulness of factorial surveys is demonstrated with data on German anti-Semitism (N=279). We show that the rate of approval with anti-Semitic statements increases if (a) respondents are told that the majority of fellows agree with such statements, (b) the term “Jews” is replaced by the term “Israelis”, and (c) reference to the Holocaust is made. Apart from the main effects of these experimental factors, significant interaction effects regarding the political attitudes and social status of respondents are observed. In a second study, a stated choice experiment on the purchase of olive oil and tomatoes was conducted in Germany (N=440). We find that respondents prefer Italian and Dutch products (control treatment) compared to Israeli and Palestinian ones (discrimination treatments). There are no significant differences between preferences for a so called ‘Peace product’ (which is produced jointly by Israelis and Palestinians) and products from Italy as well as the Netherlands. Yet, taking discriminatory attitudes (anti-Semitic and anti-Arabic attitudes) into account, a strong correlation between those attitudes and stated behaviour (purchase of Israeli, Palestinian and jointly produced products) can be found. This adds support to the hypothesis that discriminatory attitudes hold behavioural consequences.

Estimating Intra-Party Preferences: Comparing Speeches to Votes

Well-established methods exist for measuring party positions, but reliable means for estimating intra-party preferences remain underdeveloped. While most efforts focus on estimating the ideal points of individual legislators based on inductive scaling of roll call votes, this data suffers from two problems: selection bias due to unrecorded votes and strong party discipline, which tends to make voting a strategic rather than a sincere indication of preferences. By contrast, legislative speeches are relatively unconstrained, as party leaders are less likely to punish MPs for speaking freely as long as they vote with the party line. Yet, the differences between roll call estimations and text scalings remain essentially unexplored, despite the growing application of statistical analysis of textual data to measure policy preferences. Our paper addresses this lacuna by exploiting a rich feature of the Swiss legislature: on most bills, legislators both vote and speak many times. Using this data, we compare text-based scaling of ideal points to vote-based scaling from a crucial piece of energy legislation. Our findings confirm that text scalings reveal larger intra-party differences than roll calls. Using regression models, we further explain the differences between roll call and text scalings by attributing differences to constituency-level preferences for energy policy.

Cultural Legacies and Political Preferences: The Failure of Separatism in the Swiss Jura

The study of secession generally stresses the causal influence of cultural identities, political preferences, or ecological factors. Whereas these different views are often considered to be mutually exclusive, this paper proposes a two-stage model in which they are complementary. We posit that cultural identities matter for explaining secessionism, but not because of primordial attachments. Rather, religious and linguistic groups matter because their members are imbued with cultural legacies that lead to distinct political preferences – in this case preferences over welfare statism. Further, ecological constraints such as geography and topography affect social interaction with like-minded individuals. On the basis of both these political preferences and ecological constraints, individuals then make rational choices about the desirability of secession. Instrumental considerations are therefore crucial in explaining the decision to secede, but not in a conventional pocketbook manner. To examine this theory, we analyze the 2013 referendum on the secession of the Jura Bernois region from the Canton of Berne in Switzerland, using municipal level census and referendum data. The results lend support to the theory and suggest one way in which the politics of identity, based on factors like language and religion, can be fused with the politics of interest (preferences for more or less state intervention into the polity and economy) to better understand group behavior.

The American Myth of Markets in Social Policy: Ideological Roots of Inequality

The American Myth of Markets in Social Policy examines how implementing American tropes in policy design inadvertently frustrates policy goals. It investigates multiple market-oriented designs including funding for private organizations to deliver public services, funding for individuals to buy services, and policies incentivizing or mandating private actors to provide social policy. The author shows that these solutions often not only fail to achieve social goals, but, in fact, actively undermine them, for example saddling the poor with debt or encouraging discrimination. The book carefully details the mechanisms through which this occurs, for example a mismatch between program goals and either contract terms or individual preferences. The author examines several policies in depth, covering universal social insurance programs like healthcare and pensions, as well as smaller interventions like programs for the homeless. The author builds the argument using detailed empirical evidence as well as anecdote, keeping the book accessible and entertaining.