An Experimental Analysis of Decision Making with Other People's Money

David Chavanne

Major Professor: Kevin A. McCabe

Committee Members: Daniel E. Houser, Frank Krueger, Krasnow Institute for Advanced Study

Hazel Hall, 223
April 22, 2010, 06:00 AM to 07:00 AM

Abstract:

This dissertation presents the design and results of three experiments that address how people make decisions with other people's money.  These types of decisions are both "economic" – given that they involve decisions over scarce resources – and practically relevant – given that are employed by political and juridical institutions that place third-party decision makers in control of large sums of money.  The first chapter describes the role that the study of non-egoism has played in experimental economics, reviewing the existing literature on social preferences and impartial fairness and connecting it to the questions addressed in the dissertation.  Given that these two subsets of the literature decompose Adam Smith’s framework in The Theory of Moral Sentiments, Smith’s insights are applied to the existing work and used to motivate the design of the experiments in the dissertation.  Chapters two through four detail the dissertation’s three experiments.  The first experiment shows that third-party decision makers, who have the option of redistributing an endowed stakeholder’s income to an unendowed stakeholder, redistribute significantly less when the stakeholder’s income is earned.  Redistribution does not decrease further when the third party has the opportunity to earn income through the same effortful process as the endowed stakeholder.  The second experiment extends these results, showing that the degree to which third parties honor preexisting entitlements is bounded.  Redistribution significantly decreases when entitlements to income are legitimized either by having an endowed stakeholder earn the right to his advantageous position or by having him earn his income. When both rights and income are earned, however, redistribution does not decrease further.  The third experiment shows that the decision to spend other people’s money is affected by who the “other people” are.  Decision makers in a modified dictator game increase the amounts that they give to an unendowed recipient when a rebate that decreases the price of their giving is funded by the experimenter.  But when the decision makers’ rebate is funded by members of their ingroup, the price decrease does not lead to increased giving.  The fifth chapter connects these results and offers concluding remarks.

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