The econometric modelling of social preferences

Experimental data on social preferences present a number of features that need to be incorporated in econometric modelling. We explore a variety of econometric modelling approaches to the analysis of such data. The approaches under consideration are: the Random Utility approach (in which it is assumed that each possible action yields a utility with a deterministic and a stochastic component, and that the individual selects the action yielding the highest utility); the Random Behavioural approach (which assumes that the individual computes the maximum of a deterministic utility function, and that computational error causes their observed behaviour to depart stochastically from this optimum); and the Random Preference approach (in which all variation in behaviour is attributed to stochastic variation in the parameters of the deterministic component of utility). These approaches are applied in various ways to an experiment on fairness conducted by Cappelen et al. (Am Econ Rev 97(3):818-827, 2007). Various models that we estimate succeed in capturing the key features of the dataset. Conclusions concerning fairness-related behaviour depend crucially on the choice of econometric model.