Fairness, intrinsic motivations and social identity in group decisions

This thesis is a collection of three studies concerning behavioral economics in group decision contexts. Laboratory experiments are our main tool to maintain control over the specific settings that we want to analyze and they allow us to isolate the phenomena we are interested in. In the first chapter, we look at how fairness influences trust between two individuals. A relationship frequently begins with the act of splitting a common endowment. The fairness of this division may influence the success of the relationship. This chapter investigates the effects of a fair division mechanism on an ongoing trusting relationship between two partners, by comparing two different Divide and Choose (DC) procedures. In the first version of the DC mechanism, the division is informative in terms of the pro-social intentions of the divider, whereas in the second version an equal division is consistent both with self-interest and other-regarding concerns. The experimental data find that, irrespective of the mechanism used, couples who reach an equal division in the first phase show higher levels of trust in the second phase. Hence, subjects do not rationally extract and use the information about the intentions of their partner from the division phase. The results suggest that reaching an equal division creates a positive feeling that enhances trust between the couple, even when it is not possible to deduce the intentions of the partner. In the second chapter, we are able to create a measure of intrinsic motivation in a working environment; and then, using this measure, we investigate how intrinsic motivations interact with extrinsic incentives. The effort of workers in a labor context is motivated by multiple factors. In contrast with the classical economic view, several economic experiments showed that money is not the unique motivation behind their effort. In a working context where subjects have to perform a task, it becomes fundamental for the employer to understand the intrinsic motivation and the taste for the task employees should perform. We develop a novel experiment to provide an empirical measure of intrinsic motivation at work. In our experiment, with rewarded leisure time, we tell the subjects which one is the optimal working time and consequently how they can maximize their monetary profit. We define intrinsic motivation as the difference between the level of effort actually exerted and the one optimally chosen based on monetary (extrinsic) incentives in a real effort task with complete monitoring of workers. The experiment aims at validating our motivation measure in terms of predictive success in work environments without monitoring of workers. Our data show that low productive workers have lower intrinsic motivation than high productive workers; high productive workers over provide effort working more than their optimal (in monetary terms) working time. In the third chapter, we analyze the effect of social identity on wealth distribution. We design a three-agent experiment in which two agents belong to the same social group. The decision maker can choose either an allocation that maintains equal payoffs between the three agents, or an allocation that favors himself and the other non-member individual at a cost for the member of his group. We study potential determinants of loyalty by imposing experimental variation in group identity (based on the minimal group paradigm) and status (based on a measure of cognitive ability). Furthermore, we vary punishment opportunities of those who receive a disadvantage from the distribution of wealth. Our results indicate that even very weak group identities have a strong effect on efficiency. When efficiency means hurting the ingroup, subjects tend to choose the inefficient equal distribution even at a personal cost. The higher is the status of the group, the bigger is the inefficiency problem.