Social Preferences: Fundamental Characteristics and Economic Consequences
Ernst Fehr, Gary Charness
IZA Discussion Paper Series (No. 16200) · 2023
Edited by Paweł Raja, PhD · Published · Updated
Abstract
A comprehensive review of social preferences—altruism, reciprocity, inequity aversion, and trust—arguing that a large share of people are not purely self-interested and that these preferences have first-order consequences for labor markets, contracts, and cooperation.
Methodology
Synthesis of decades of experimental evidence from dictator, ultimatum, trust, gift-exchange, and public-goods games, organized around the measurement, heterogeneity, and stability of social preferences.
Findings
A substantial minority are conditional cooperators and reciprocators whose behavior depends on others' actions and intentions. Social preferences shape incentive design: explicit monetary incentives can crowd out reciprocity, while fairness perceptions drive effort, wage rigidity, and contract enforcement.
Applied nudge
Design incentives that activate reciprocity rather than replace it—frame contributions as fair exchange and make others' cooperative behavior visible to trigger conditional cooperation.
Citation
Fehr, E., & Charness, G. (2023). Social preferences: Fundamental characteristics and economic consequences. IZA Discussion Paper No. 16200.
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