Studies on Culture and Social Norms III

Croson and Buchan (1999) use a trust game to investigate how gender interacts with cultures to influence individual behavior. The results are similar across cultures: no significant effect of gender is found on the amount send by the proposers, but women reciprocate significantly more than men. Beside cross-cultural studies, many other experimental studies emerging in recent years have shed light on how social norms function. Bicchieri and Xiao (2008) designed an experiment to test Bicchieri (2005)’s theory and test the relative importance of normative expectations and empirical expectations. In their dictator game, they tried to manipulate the subjects’ empirical expectations and normative expectations by showing them dictators’ decision or/and expectations in previous sessions. The expectation elicitation was made incentive compatible by rewarding the dictators based on the accuracy of the expectations they reported. The results show that subjects’ choice are influenced by both normative and empirical expectations, and when there is a conflict between the two expectations, empirical expectations are more important in predicting individual behavior.

Dana et al. (2006) show that people take into account other’s expectations while making decisions. They added one twist to the standard dictator game: the dictators can pay \$1 to exit the game with the advantage that the receiver will never know that the game has been played. About one third of dictators decided to quietly exit the game. In another private game setting where the receiver never knows about the game or where the money received is from, almost not exit was chosen. This implies that some dictators choose to give not because they care for fairness or others’ well-being, but simply because they don’t want to violate others’ expectations.

In another experiment, Dana et al. (2007) used binary dictator game to lend evidence to a similar argument: people behave generously mainly because they dislike appearing unfair to others. In their baseline treatment, the dictator can either choose A, which results in a self-interested allocation (\$6, \$1), or choose B, which leads to a fair allocation B (\$5, \$5). For the other three treatments, the level of transparency is reduced using different designs. In the hidden information treatment, the dictator can again choose A to receive $6 or B to receive $5, but the payoffs for the receiver are uncertain ex ante: with probability 0.5 the payoffs are the same as the baseline treatment (\$1 and \$5 respectively), and with probability 0.5 the payoffs for the receiver flip (\$5 and \$1 respectively). The dictator can choose to reveal the real payoffs or not. Many subjects chose not to reveal the really payoffs and took the selfish action. In their multiple dictator treatment, two subjects play the role of dictator and only when both of them choose A the allocation is inequitable (\$6, \$6, \$1), otherwise it will be a fair allocation (\$5,\$5,\$5). In their final treatment, the plausible deniability treatment, a "cutoff” feature is added to the baseline game: the computer will randomly choose an allocation if the dictator does not choose an action by the end of the cutoff period. Hence the receiver in this game would never know whether the allocation is chosen by the dictator or by the computer. The proportion implementing fair allocation in the three treatments that relax transparency, as the experimental results show, drops significantly compared to the baseline treatment. It seems that when the subjects have the moral wiggle room, they are more likely to behave according to self interest. People are willing shun away from a social norm, even at a cost, in order to make “justified” self-interested decision.

The above experiments have clearly shown that social norms play an important role in individual decision making and the expectations of other people matter. Current theories on prosocial preferences, such as inequality aversion, are inadequate in explaining these results (Fehr and Schmidt, 1999; Bolton and Ockenfels, 2000). In the game studied by (Dana et al., 2006), it is clear that the allocation (\$9,\$1) is preferred to (\$9,\$0) according to the inequality aversion model, but many subjects chose (\$9,\$0) given that the receiver would not know the proposed ever made any decision on the allocation. Similarly, the binary dictator game with hidden information in (Dana et al., 2007), revealing the payoff information for the receiver will aid the proposed in making decisions and increase her expected utility according to the inequality aversion model, but subjects chose to be ignorant on the other party’s potential payoff. Inequality aversion is outcome-based preferences. For the same reason, social welfare concerns, which drive people to maximize the total welfare of all the players, are not enough to explain the above experimental regularities.

Studies on Culture and Social Norms II

One way to understand the functioning of social norms is to study behavioral differences across cultures. In the area of experimental economics, several cross-culture experiments have been conducted, the results of which show how culture can make a difference in individual behavior. Roth et al. (1991) conducted a cross-cultural experiment, comparing related two person bargaining game and multi-person market environment in Japan, Yugoslavia, Israel, and the United States. While the market outcomes converged to equilibrium, the outcomes in the bargaining game varied greatly across culture: the Japanese and Israeli offers are lower, but rejection rates are not higher in these two countries. The similar rejection rates indicate that countries have different sharing norms as to what constitutes a reasonable offer and those norms are well accepted in each country.

Henrich et al. (2001) ran an experiment using ultimatum game in 15 small societies. Their results reveal dramatic differences across cultures: in some societies, people show rational behavior predicted by traditional game theory, and in other societies “hyper-fair” offers are common, which can be interpreted as competitive gift-giving insults. Average offers in each society are strongly correlated with the degree of market integration. Contrary to most people would expect, in cultures with the most market integration, people exhibit more prosocial behavior. This implies that either market experience gives rise to norms of equal division or the norms of fairness promote the development of markets. Henrich et al. (2006) uses ultimatum game and third-party punishment game to study punishing behavior in the same 15 societies. They find that although people from all societies show some willingness to take costly action to punish unfair behavior, the magnitude of the punishment varies a lot across cultures. They also find that costly punishment is positively correlated with altruistic behavior across societies. The study of Henrich et al. (2010) shows that community size positively correlated with punishment and participation in religion is also likely to be associated with fairness. Using third-party dictator game played in 12 societies, Marlowe et al. (2008) also show that people from a larger and more complex society are more likely to engage in “altruistic” punishment. These results suggest that prosocial behavior is not just the product of an inherent psychology but also shaped by norms and institutions that have evolved over the human history.

Buchan et al. (2006) examine cultural difference using a trust game. The game was played in China, Japan, Korea and the United States. They asked the participants to fill out a questionnaire in order to get a measure of their cultural orientation (collectivist or individualist) in the context of the trust game. Their data show that people from different countries exhibit different level of other-regarding behavior: Chinese are most trusting and trustworthy while the Japanese are least so 7. Also, the influence of social distance on a person’s other-regarding behavior varies across country. This implies that individual’s cultural orientation may interact with other factors to influence behavior.

Studies on Culture and Social Norms I

Culture can be defined as the shared values among a group. It consists of unwritten rules of social interactions. In a social group, people depend on these shared cultural values to interact with others. Hofstede et al. (2010) consider culture as “the software of mind”, the collective mental programming that distinguishes one group from another. They characterize seven different cultural dimensions that capture the values of different cultures: power distance, individualism, masculinity, uncertainty avoidance, long term orientation, indulgence versus restraint, and monumentalism. Social norms are an intrinsic part of culture (Elster, 1989, 2009; Bicchieri and Xiao, 2008). They are shaped by culture and serve an important channel through which culture operates. There are an increasing number of academic researchers coming to realize that culture and norms are important in explaining the behavior of individuals, the functioning of organizations, and the difference in economic growth rates across countries (Hofstede et al., 2010; Harrison and Huntington, 2001).

Social norms are a manifestation of cultural values and attitudes in a specific context. Even in the same culture, norms can vary across different group. Cultural values define what is good versus bad; social norms describe which actions are appropriate and which are not in a specific situation. Cultural values are the core of culture, and social norms are the applications of cultural values to different situations. If cultural values are the root of the tree, then social norms are the trunk and leaves. They both belong to the same tree of culture. Loosely speaking, culture is just a collection of social norms in a society. We do need to notice that norms are context dependent, and even in the same culture, different groups may have different norms (Akerlof and Kranton, 2000).

Economists have proposed theories on social norms, and they generally agree that norms are values and beliefs shared among people in a group. Ostrom (2000) defines social norms as shared understandings about actions that are obligatory, permitted, or forbidden. Elster (1989) maintains that social norms are just product of shared expectations and serve no particular purpose. He emphasizes that social norms prescribe actions, rather than outcomes. The functioning of social norms depends critically on the individuals being observed by others, and sanction mechanisms play an important role in the operation of social norms. Fehr and Fischbacher (2004) also emphasizes the role of informal social sanction in the enforcement of social norms. Young (1998) claims that social norms are coordinating device for social games, and define social norms as equilibria of coordination games. Applying stochastic process theory, he illustrates social norms welfare-improving are more likely to appear in the long run. Bicchieri (2005) points out that social norms transform social dilemma game to a coordination game by modifying people’s preferences. She emphasizes the importance of expectations in the working of social norms, and identified two distinct types of expectations. Empirical expectations refer to what one observed or know about the behavior of others in similar situations. Normative expectations are second-order expectations, referring to what we believe others think we ought to do in a situation.

External Incentives vs. Intrinsic Motivation

In economics, we have the rational choice model, which assumes that people are rational, self-interested, and they respond to incentives. The incentives are usually a monetary reward or punishment. If you want to change people’s behavior, just change the incentives.

But reality is not always that simple. Steve Levitt, the author of the book Freakonomics, once mentioned an interesting story about how he potty trained his toddler daughter Amanda. After Amanda's mom got frustrated at the results even after she had tried all the methods she read from the books, Steve decided to take over and handle this as an economist: let incentives to work its way. He promised Amanda that every time she went to pee in the potty, she got a bag of M&M's. It worked perfectly! Well, for the first couple of days. Eventually, this incentive scheme backfired: Amanda would go to the potty, trickle several drops, ask for a bag of M&M's, and go to the potty again, trickle several drops and ask for another bag of M&M's, and more potty, and more M&M's. Incentives can backfire, even in the case of a toddler.

Most social scientists agree that people have the intrinsic motivation to abide by norms, to care for others and to behave virtuously. Even economists agree that intrinsic motivation plays a role. But given intrinsic motivation, incentives should also work, right? Adding external incentives can only reinforce the behaviors driven by existing intrinsic motivation stronger, isn't it obvious? Well, the obvious may not always be true. Behavioral economists start to find more and more evidence that monetary incentives can crowd-out people’s intrinsic motivation (Frey and Jegen, 2001; Bohnet et al., 2001; Fehr and Gächter, 2001). Proposing pecuniary payment, for instance, reduced Swiss citizens’ willingness to host a nuclear waste facility (Frey and Oberholzer-Gee, 1997). Imposing a fine on parents who arrive late to pick up their children from a day care center actually increased the number of parents arriving late, and removal of the fine did not decrease the number (Gneezy and Rustichini, 2000b). Offering a monetary compensation for blood donors reduces the supply of prospective blood donors, especially among women (Mellström and Johannesson, 2008).

The assumption of self-interested individuals may be a self-fulfilling prophecy. Everyone who is in a marriage knows that the best way to kill a  marriage is to consider the other person as lazy, unhelpful, and ungrateful. Doing that will make the your partner act that way. When you consider others as selfish egoists, it is very likely that they would start to act like one. Imposing incentives in situations like this can impair people’s intrinsic motivation.

If you want to change people’s behavior, you should not rely exclusively on rewards, regulations or punishment. People, like water, can always find cracks in any set of regulations. Sometimes, and more than often, the most effective way to change people's behaviors is to resort to their intrinsic motivation like ethics and norms.