Do You Reward and Punish in the Way You Think Others Expect You to?

22 Pages Posted: 30 Nov 2009

See all articles by Omar Al-Ubaydli

Omar Al-Ubaydli

George Mason University - Department of Economics; Derasat; George Mason University - Mercatus Center

Min Sok Lee

Citadel Group Foundation

Date Written: June 2009

Abstract

This paper addresses three questions: (1) When deciding on whether to reward or punish someone, how does how you think others expect you to behave affect your decision? (2) Does it depend upon whether others expect you to reward them vs. punish them? (3) What is the interpretation of such a causal effect? We investigate these questions using a modification of the lost wallet trust game (Dufwenberg and Gneezy (2000)) that permits punishment. Like previous studies, we collect data on what secondmovers think that first‐movers expect them to do by directly eliciting the second‐movers’ expectations. Unlike previous studies, we ensure exogeneity of these expectations by instrumenting for them. The instrument is the expectations of neutral observers which are disclosed to second‐movers prior to the elicitation of second‐movers’ expectations. We find that what you think others expect you to do has a zero causal effect on both reward and punishment decisions. We also find that it is important to instrument for second‐order expectations because they are endogenous. We interpret these findings in terms of models of guilt‐aversion and intentional reciprocity.

Keywords: Behavioral confirmation, guilt, intentions, reciprocity, reward, punishment

JEL Classification: D63, D64, D84

Suggested Citation

Al-Ubaydli, Omar and Lee, Min Sok, Do You Reward and Punish in the Way You Think Others Expect You to? (June 2009). GMU Working Paper in Economics No. 09-06, Available at SSRN: https://ssrn.com/abstract=1515875 or http://dx.doi.org/10.2139/ssrn.1515875

Omar Al-Ubaydli (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-4538 (Phone)
703-993-1133 (Fax)

Derasat ( email )

Bahrain

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

Min Sok Lee

Citadel Group Foundation

131 South Dearborn Street
Chicago, IL 60603
United States

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