Social Norm Theory

Research has shown that people are not  not only influence by pecuniary payoffs, but also other non-monetary considerations. Experiments give evidence that people have pro-social and other-regarding preferences.

Economists usually represent people's preferences using utility functions. A lot of research has been devoted to capture this type of other-regarding preferences along with monetary payoffs. Economists have proposed utility function that incorporate the idea of inequality-aversion (Fehr and Schmidts 1999, Bolton and Ockenfels 2000), emphasize that the role of  reciprocity and intention (Rabin 1993),  and highlight the role of social norms  (Bicchieri 2005; Krupka and Weber 2008).

Social norms theory overcomes the consequentialism nature of traditional preferences, highlights the role of contexts, and has more predictive power compared to other theories. Of course, predictive power is not the only criterion to evaluate the quality of a theory, as there is always a trade-off between predictive power and the complexity of the model. When using social norm theory, we can always claim whatever an individual chooses is caused by the consideration of social norms. By explaining everything, we explain nothing. Fortunately,  Krupka and Weber (2008) propose a way to elicit social norms in the lab using incentive compatible coordination game, and using this objective measure they find that social norms theory can be used predict individuals' behavior. This gives us confidence that social norm theory is sound.