Essays on Group Identity and Social Preferences

This thesis studies the effect of uncertainty in the group identity or the payoffs on social preferences. It also tests the robustness of Dana, Weber and Kuang's results and presents a model to understand the findings of the experiment. Chapter 1 investigates the effect of uncertainty in group membership of the subjects on social preferences. We find that the decision to know the group identity of the counterparts' who turn out to be an in-group member in the dictator and response games increases the likelihood of choosing the social-welfare-maximising outcome. The revelation of matched player's identity decreases the likelihood to reward and increases the likelihood to punish. Chapter 2, studies the effect of uncertainty in payoffs on social preferences in the presence of group identity. We find that the uncertainty on payoffs does not reduce the fair choices if the subjects are matched with an in-group member. However, the decision to know the payoffs of an out-group counterpart increases the likelihood of choosing self-interested choice. Chapter 3 tests the robustness of Dana, Weber and Kuang's result in a within-subjects experiment. Our data confirm the DWK's findings, but there is an increase in the number of self-interested choices in the hidden-payoffs treatment. Chapter 4 presents a model that combine Fehr and Schmidt preferences and prospect theory in order to understand the result of second treatment of DWK's experiment. In the treatment, the subjects have an option to reveal their counterparts' payoffs. We find a threshold for β = 1/5 beyond which the utility of revealing he hidden payoffs and choose the fair choice is higher than not revealing. Also, the combination of Fehr-Schmidt preferences with two alternative decision theories, expected utility and prospect theory, produce the same β.