1 Introduction

The fields of economics and other social sciences, such as psychology, often differ in their views on the use of monetary incentives in experiments. Economists usually argue that financial rewards create a more realistic environment within the lab (Reference Rosenboim and ShavitRosenboim & Shavit, 2012), causing subjects to consider their decisions more carefully (Reference Carpenter, Verhoogen and BurksCarpenter et al., 2005). Psychologists, on the other hand, tend to believe that experimental subjects are generally intrinsically motivated and need no financial reward for decision-making (Reference Bolton and OckenfelsCamerer & Hogarth, 1999). Of course, this distinction is somehow artificial and far from building a clear-cut dividing line between those professions, but the role of incentives in experiments remains an important field, given that previous research provides empirical evidence that different incentive mechanisms usually, but not always, induce different behavioral responses from experimental subjects.Footnote ¹

In this study, we examined the effects of the presence or absence of monetary incentives on other-regarding behavior, that is, social preferences. Social preferences, such as egalitarianism or generosity, are argued to be highly relevant to decision-making in a variety of economic and social contexts such as philanthropy and charitable giving, organ donations, or family transfers (see Reference Kolm and YthierKolm & Ythier, 2006, for a comprehensive overview). However, exactly how monetary rewards affect those social preferences remains unclear. Compared to a hypothetical setting without financial rewards, we found that even low-stakes monetary incentives 1) decrease (strongly) egalitarian choices, 2) increase spiteful choices, but 3) also increase generous choices.

A common way to elicit social preferences is to use the dictator game (DG) in which a sender (dictator) decides how to allocate a sum of money to himself and a receiver.Footnote ² There are only few studies on the effect of introducing financial incentive mechanisms in DGs and these report mixed results: Sefton (1992) found significantly more self-interested offers in a DG with a low-stakes financial reward compared with Forsythe et al.’s (1994) results for an equally designed hypothetical setting. In Dana et al. (2007), receivers in a binary DG were instructed to choose hypothetically between an equal and an unequal distribution, while the choices of dictators were incentivized: Compared with the incentivized treatment, a larger share of subjects picked the egalitarian option in the hypothetical treatment. Amir et al. (2012) reported that 1$ incentives in an online DG significantly decreased average offers compared to a no-stakes DG. On the other hand, Ben-Ner et al. (2008) showed that dictators facing decisions involving real money were slightly more generous compared with subjects considering hypothetical money, but this difference was not significant in statistical and economic terms, even after controlling for subject-specific characteristics.

Various models to describe different types of social preferences. In economics, the most popular ones are Reference Croson and GneezyFehr and Schmidt (1999), who incorporate envy and altruism in the utility function, the theory of equity, reciprocity, and competition (ERC) by Bolten and Ockenfels (2000), in which deviations from egalitarian distribution result in disutility, and the Quasi-maximin model by Reference Charness and RabinCharness and Rabin (2002), which takes into account the lowest payoff of a distribution. However, it is not easy to distinguish these different models in standard DGs (Daruvala, 2010, e.g., uses evaluations of money distributions in groups of 11).

In our study, we used DGs similar to those of Fehr et al. (2008) which provided us with a simple way to categorize different types of social preferences. Subjects were presented with three sets of dichotomous choices to allocate money to themselves and another person. In the prosocial game, the dictator chose between two different allocations, (0.5,0.5) and (0.5,0). The dictator could increase his partner’s payoff at no cost to achieve an egalitarian distribution. In the envy game, the dictator faced a choice between (0.5,0.5) and (0.5,1). An increase in the partner’s payoff was possible only by deviating from the egalitarian distribution. In the sharing game, the feasible allocations were (0.5,0.5) and (1,0). Choosing the egalitarian option in the prosocial or the envy game indicates inequality aversion: In the former case, the decision maker does not want the other person to earn less than himself, and in the latter case, he does not want his partner to earn more. The sharing game can be regarded as a strong form of the prosocial game—the fundamental difference is that taking the egalitarian option in the sharing game is costly for the dictator. A particular advantage of choosing the three dichotomous choice sets instead of a single (continuous) DG is that subjects’ choices can be directly translated to five (weak and strong) types of social preferences, namely spite, egalitarianism, and generosity (Table 1).

Table 1: Subcategories of social preferences.

Source: Own compilation based on Fehr et al. (2008).

These types of social preferences differ with respect to their underlying motives. In particular, Table 1 shows that spiteful subjects always choose options making their counterparts worse off, even if they could increase their partners’ payoff at no cost in the prosocial game. Weakly egalitarian subjects choose the egalitarian option whenever they are not disadvantaged; they are not spiteful but they also do not allow their counterparts to earn more than them. Strongly egalitarian subjects always choose the egalitarian option—no matter if it “hurts” others or them. Weakly generous subjects grant their counterparts a higher payoff if this is at no cost for them. Finally, strongly generous subjects always choose the best option for their counterparts in the three DGs, even if this means a costly transfer in the sharing gameand a deviation from the (0.5,0.5) distribution in the envy game,with the latter choice representing the fundamental difference to the egalitarian category.

The dictator games of Fehr et al. (2008) have been applied in a variety of settings (e.g., Svensson, 2009; Reference Bauer, Cassar and ChytilovaBauer et al., 2011a; Reference Bauer, Chytilová and Pertold-GebickaBauer et al., 2011b; Reference Fehr, Rützler and SutterFehr et al., 2011; Zaleskiewicz and Helka, 2011; Reference House, Henrich, Brosnan and SilkHouse et al., 2012); experimental subjects were usually children or adolescents, incentives were usually sweets. Fehr et al. (2011) provided small monetary incentives to a group of adolescents. In our experiment, we used an adult subject pool that was randomly assigned to an incentivized treatment and a hypothetical treatment. To our knowledge, we are the first to study hypothetical vs. incentivized decisions in the Fehr et al. (2008) DGs in an adult subject pool.

Having a look on the DG results mentioned above, the introduction of financial incentives is likely to lead to different motives. The results of Dana et al. (2007) speak for more hypothetical egalitarism, whereas those of Ben-Ner et al. (2008) indicate slightly more incentivized generosity. Following Amir et al. (2012), we expect incentivized subjects to be less nice than subjects of our hypothetical treatment, that is, we hypothesize them to be more spiteful and less strongly egalitarian or generous.