Fabrizio Adriani and Silvia Sonderegger
People tend to think that others are like them. Nice guys tend to think that others are nice, while crooks believe that other people have similarly shifty personalities. This consensus effect has long been recognized by psychologists, at least since the seminal paper by Ross et al. (1977). Economists have also increasingly started to document and to pay attention to this phenomenon.
In this Nottingham School of Economics working paper, published in the European Economic Review, Silvia Sonderegger and Fabrizio Adriani study the implications of the consensus effect for the long-term evolution of preferences. They consider a setup where individuals either have preferences that only reflect their selfish material welfare (Opportunists) or have other-regarding/principled preferences (Unselfish). People are randomly matched to play a trust game in which trusting is optimal only when one's counterparty is unselfish. However, individual preferences are private information, and, thus, players decide to trust or not based on their (possibly heterogeneous) beliefs about the composition of the overall population. Endowed with this setup, the paper uses an indirect evolutionary approach to ask what distributions of preferences are likely to arise in the long run.
In contrast with much of the previous literature, the model does not rely on individual preferences being observable. Introspection is not the only source of information, though, since players observe an external signal on the distribution of preferences in the population before playing. Silvia Sonderegger and Fabrizio Adriani show that, in this environment, a polymorphic population (where unselfish and opportunistic preferences coexist) may be stable. Their theoretical analysis is thus one of the few to account for heterogeneity in behaviour extensively documented by the experimental literature.
Intuitively, since they are more "optimistic" about others, Unselfish individuals tend to be more willing to trust. If there are enough Unselfish people around, trusting is the right action to take, and, thus, the Unselfish are (initially) more successful than the Opportunists. There is however a countervailing force that sets a natural upper bound to the share of unselfish individuals. As the Unselfish type spreads, all players (including the Opportunists) become more likely to observe objective evidence suggesting that trusting is indeed optimal. The Opportunists become accordingly more willing to trust and, consequently, participation propensities become less type-dependent. At the same time, higher participation rates (of both types) increase the scope for cheating, thus boosting the Opportunists' fitness. In essence, the very prevalence of unselfish individuals undermines their evolutionary advantage. This results in a stable polymorphic population where unselfish individuals do materially as well as opportunistic ones.
The second contribution of the paper focuses on the interaction between ethical attitudes and institutions aimed at sanctioning/preventing opportunistic behaviour. Deterrence always increases welfare in the short run (ie. keeping the distribution of types fixed), but may have undesirable long term effects (when the distribution of types is endogenous). For some parameter values, this may lead to more cheating and lower welfare. Retribution has somewhat opposite effects: it entails welfare costs in the short run (since the welfare of cheaters is reduced), but generates a more desirable distribution of preferences in the long run.
Forthcoming European Economic Review, “Trust, Trustworthiness and the Consensus Effect: An Evolutionary Approach” by Fabrizio Adriani and Silvia Sonderegger
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Posted on Wednesday 22nd July 2015