How Much is a Friend Worth? Directed Altruism and Enforced Reciprocity in Social Networks

53 Pages Posted: 17 Oct 2007

See all articles by Stephen Leider

Stephen Leider

University of Michigan, Stephen M. Ross School of Business

Markus M. Mobius

Microsoft Corporation - Microsoft Research New England; University of Michigan at Ann Arbor - School of Information; National Bureau of Economic Research (NBER)

Tanya Rosenblat

University of Michigan at Ann Arbor - School of Information

Quoc-Anh Do

Monash University - Department of Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: October 1, 2007

Abstract

We conduct field experiments in a large real-world social network to examine why decision-makers treat their friends more generously than strangers. Subjects are asked to divide a surplus between themselves and named partners at varying social distances, but only one of these decisions is implemented. We decompose altruistic preferences into baseline altruism towards strangers, and directed altruism towards friends. In order to separate the motives that are altruistic from the ones that anticipate a future interaction or repayment, we implement an anonymous treatment in which neither player is told at the end of the experiment which decision was selected for payment, and a non-anonymous treatment where both players are told the outcome. Moreover, in order to distinguish between different future interaction channels - including signaling one's propensity to be generous and enforced reciprocity, where the decision-maker grants the partner a favor because she expects it to be repaid in the future - the experiments include games where transfers both increase and decrease social surplus. We find that decision-makers vary widely in their baseline altruism, but pass at least 50 percent more surplus to friends as opposed to strangers when decision-making is anonymous. Under non-anonymity, transfers to friends increase by an extra 24 percent relative to strangers, but only in games where transfers increase social surplus. This effect increases with the density of the social network structure between both players. Our findings are well explained by enforced reciprocity, but not by signaling or preference-based reciprocity. We also find that partners' expectations are well attuned to directed altruism, but that they completely ignore the decision-makers' baseline altruism. Partners with higher baseline altruism have friends with higher baseline altruism and, therefore, are treated better by their friends.

JEL Classification: C73, C91, D64

Suggested Citation

Leider, Stephen and Mobius, Markus M. and Mobius, Markus M. and Rosenblat, Tanya and Do, Quoc-Anh, How Much is a Friend Worth? Directed Altruism and Enforced Reciprocity in Social Networks (October 1, 2007). FRB of Boston Working Paper No. 07-11, Available at SSRN: https://ssrn.com/abstract=1021700 or http://dx.doi.org/10.2139/ssrn.1021700

Stephen Leider

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

HOME PAGE: http://www-personal.umich.edu/~leider/

Markus M. Mobius

University of Michigan at Ann Arbor - School of Information ( email )

304 West Hall
550 East University
Ann Arbor, MI 48109-1092
United States

HOME PAGE: http://www.markusmobius.org

Microsoft Corporation - Microsoft Research New England ( email )

One Memorial Drive, 12th Floor
Office 12062
Cambridge, MA 02142
United States

HOME PAGE: http://www.markusmobius.org

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.markusmobius.org

Tanya Rosenblat (Contact Author)

University of Michigan at Ann Arbor - School of Information ( email )

304 West Hall
550 East University
Ann Arbor, MI 48109-1092
United States

HOME PAGE: http://www.tanyarosenblat.org

Quoc-Anh Do

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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