Economic preferences of kids and adolescents - ncer.edu.au · Economic preferences of kids and adolescents Martin Kocher University of Munich, University of Gothenburg, and CESifo

Economic preferences of kids and adolescents

Martin Kocher University of Munich,

University of Gothenburg, and CESifo Munich

March 2012 Queensland University of Technology

(c) M. Kocher and M. Sutter 2

• Many trust games have confirmed the basic patterns first reported in Berg et al. (1995). See the survey in Camerer (2003).

• In the following we discuss one recently investigated aspect of trust:

– Do trust and reciprocity develop with age, and - if so – how?

Trust and age


In order to study the development of trust and reciprocity with age they run an experimental trust game with subjects from 6 different age groups:

– 8-year olds (primary school)

– 12-year olds (secondary school)

– 16-year olds (secondary school)

– Students (avg. age 22; std.dev. 2.8)

– Working professionals (avg. age 32; std.dev. 6.3)

– Retired persons (avg. age 68; std.dev. 8.6)

Sutter and Kocher (2007) – Trust and age


• The standard trust game was used, except that the

trustees did not receive an initial endowment (note that the

trustee‘s endowment could not be used for returns in the

original paper of Berg et al., 1995).

• Assuming payoff-maximization and applying backward-

induction one arrives at the prediction that x = 0 and y = 0,

i.e. no trust and no (opportunity for) reciprocity.

Sutter and Kocher (2007) – Design


• The trustor‘s endowment E was worth between 2 and 8 Euro in the different age groups (see Appendix of paper for checks on stake size effects).

• The game was framed as a two-person interaction between „John/Joanna“ and „Michelle/Michael“.

• Subjects were always told that they would interact with a person from the same age group, which, however, was to be selected randomly from a different class or session.



• The experiment was run as a paper and pencil experiment, where decisions were recorded on a decision form (by marking transfers, respectively returns).



• Piaget‘s and Kohlberg‘s research on the development of moral judgment have led to studies on the development of prosocial behavior (which is not purely self-interested and intends to benefit others at own costs).

• Moral reasoning as well as prosocial behavior advance with age (Eisenberg and Fabes, 1998).

Insights from developmental psychology


• Trust in strangers develops gradually from childhood to early adulthood (Krebs and van Hesteren, 1994; Langford, 1997).

• Reciprocity (as a material tit-for-tat strategy) is typically established already at age 5-6 years (Youniss, 1980, 1986).

Developmental psychology on trust and reciprocity


Hypothesis 1: Trust increases with age. The transfer x is expected to increase with age, at least until early adulthood.

Hypothesis 2: Reciprocity is established at an early age. The return y should depend significantly positive on the transfer x, irrespective of age.

Hypotheses from developmental psychology


The following table contains the most important variables. The two figures on the next slides illustrate the main results.

Sutter and Kocher (2007) – Results


Transfers (trust) increases almost linearly until early adulthood.



Relative returns (reciprocity) seem to increase in steps.



• Reciprocity is measured as the dependence of the return y on the transfer x.

• Use of a two-way censored tobit-regression with zero as left-side limit and 3x as right-side limit.

• All observations with x = 0 are excluded (N=18 in all age groups).

Measuring reciprocity


The marginal effects of the transfer on the return increases with age until adulthood.

Results on reciprocity


In the age groups of children and adolescents it seldom pays to trust.

Does trust pay off?


In the adult age group it typically pays to trust.

Does trust pay off?


• Trust in strangers increases significantly from childhood to

early adulthood, and stays rather constant afterwards.

• Reciprocity is a prevailing pattern of behavior already at

age 8, but becomes less self-serving with age.

Sutter and Kocher (2007) – Summary


• In the following we have a look at very recent studies on:

Study 1:

Uncertainty attitudes

Time preferences

Their relationship to real-world behavior

Study 2

More generally: Other-regarding preferences

What else?

Martin Kocher

Preferences, age, and predictability of behavior in the field Economic experiments with children and adolescents

14 March 2012 # 20 Martin Kocher

Matthias Sutter, Martin Kocher, Daniela Rützler, and Stefan Trautmann Impatience and uncertainty – Experimental decisions predict adolescents‘ field behavior We experimentally elicit risk, ambiguity and time preferences of 661 teenagers (10-17 years) and relate the experimental measures to teenagers‘ BMI Smoking Drinking Saving Conduct at school

Overview – Study 1 Study 1 Study 2 Additional slides


Recent research shows that experimentally elicited risk and time preferences are a good predictor of adults’ field behavior (economic success, health status) (Chabris et al., 2008; Burks et al., 2009).

Children and teenagers face many real life decisions on uncertain outcomes

with long-term consequences (e.g. smoking, taking drugs, drinking, saving, investing in education).

Important information for the design of policy interventions targeting

behavior with negative long-term consequences.

General motivation Study 1 Study 2 Additional slides


(1) Joint elicitation of time preferences and uncertainty attitudes in children and teenagers.

(2) Linkage of experimentally elicited attitudes and real-world behavior. (3) Large sample size (661 subjects, 10-17 years). (4) No drop-outs and thus no self-selection.

Contribution of Study 1 Study 1 Study 2 Additional slides


Data and setup

661 participants aged 10 to 17 years. Real monetary payoffs. Experiments run in four Austrian grammar schools from October 2007

until May 2008.

Age group # subjects

10-11 years (5th grade) 208




SUM 661

Study 1 Study 2 Additional slides


Method – Risk/ambig.

Design based on Ellsberg‘s (1961) two-color choice task. 20 choices between a risky lottery with a 50/50 chance of winning

(“urn A”) and a sure amount of money. 20 choices between an ambiguous lottery with an unknown

probability of winning (“urn B”) and a sure amount of money. Winning prize (=x) of both lotteries is between 6 and 12 €. One choice played for real; 2 € show up fee. Pen and paper experiment in class; 50 minutes.



Decision sheet Study 1 Study 2 Additional slides


Experiment Study 1 Study 2 Additional slides


Measures

Risk aversion: 1-

Ambiguity aversion:

CE risky prospect Prize

CE risky prospect – CE ambiguous prospect CE risky prospect + CE ambiguous prospect < 0 (ambiguity loving) 0 (ambiguity neutrality) > 0 (ambiguity aversion)

< 0.5 (risk loving) 0.5 (risk neutrality) > 0.5 (risk aversion)



Main results on risk/ambig.

Risk aversion Girls are significantly more risk averse. Age plays no role, nor do any other socio-demographics.

Ambiguity aversion Teenagers with more siblings and better German grades are weakly significantly more ambiguity averse. None of the other independent variables has an effect (like age, gender).



Measuring impatience

Eight choice lists with 20 decisions each between an earlier, smaller amount and a later, larger amount.

Early amount always fixed: either 4.05 € or 10.10 €. Later amount started with early amount and increased in steps of 0.10

€, respectively 0.20 €. Early amount available today or in three weeks. Later amount entails delay of three weeks or one year. One out of 160 decisions was paid out at the chosen date.



One choice list example

[1] 10.10 euro today Ο or Ο 10.10 euro in 3 weeks [2] 10.10 euro today Ο or Ο 10.30 euro in 3 weeks [3] 10.10 euro today Ο or Ο 10.50 euro in 3 weeks [4] 10.10 euro today Ο or Ο 10.70 euro in 3 weeks [5] 10.10 euro today Ο or Ο 10.90 euro in 3 weeks [6] 10.10 euro today Ο or Ο 11.10 euro in 3 weeks [7] 10.10 euro today Ο or Ο 11.30 euro in 3 weeks [8] 10.10 euro today Ο or Ο 11.50 euro in 3 weeks [9] 10.10 euro today Ο or Ο 11.70 euro in 3 weeks [10] 10.10 euro today Ο or Ο 11.90 euro in 3 weeks [11] 10.10 euro today Ο or Ο 12.10 euro in 3 weeks [12] 10.10 euro today Ο or Ο 12.30 euro in 3 weeks [13] 10.10 euro today Ο or Ο 12.50 euro in 3 weeks [14] 10.10 euro today Ο or Ο 12.70 euro in 3 weeks [15] 10.10 euro today Ο or Ο 12.90 euro in 3 weeks [16] 10.10 euro today Ο or Ο 13.10 euro in 3 weeks [17] 10.10 euro today Ο or Ο 13.30 euro in 3 weeks [18] 10.10 euro today Ο or Ο 13.50 euro in 3 weeks [19] 10.10 euro today Ο or Ο 13.70 euro in 3 weeks [20] 10.10 euro today Ο or Ο 13.90 euro in 3 weeks



4 choice lists with 10.10 €

1) 10.10 € 10.10 € + x 2) 10.10 € 10.10 € + x 3) 10.10 € 10.10 € + x 4) 10.10 € 10.10 € + x

today

3 weeks 6 weeks

today 1 year

1 year and 3 weeks

3 weeks

3 weeks



Main results – impatience

Impatience increases with… Relative risk loving (more risk averse subjects are more patient) Worse math grades More pocket money Number of siblings Lower stakes No age effects



Field behavior

Variables (1-4 are self-reports; 5 collected from school)

1. Saving: “Do you save money from your available budget?” 2. Smoking: “Do you spend money on tobacco?” 3. Alcohol consumption: “Do you spend money on alcohol?” 4. Body mass index: weight/height² normalized by the median

body mass index for each age and gender (hence we measure relative overweight)

5. Grade on conduct at school (on referee’s request – available for a subset of students)



Regressions

Saving Smoking Drinking

Impatience (future equivalent) – (7 1 0) [-0.025] + (2 4 1) [0.005] + (4 2 1) [0.025]

Risk aversion

Ambiguity aversion – (0 3 5) [-0.004]

Age – (8 0 0) [-0.028] + (8 0 0) [0.017] + (8 0 0) [0.130]

Female + (0 0 1) [0.003]

German grade#

Math grade# + (8 0 0) [0.032] – (8 0 0) [-0.008]

No. of siblings

Pocket money per week + (0 0 5) [0.018]

No. of observations 639 639 639

Mean (pseudo) R² 0.168 0.361 0.397 (x y z) denotes the number of times the variable is significant at the 1%, 5%, 10% level



Regressions

Body mass index – rel. BMI

Conduct at school (“+” is worse)

Impatience (future equivalent) + (0 0 2) [0.006] + (7 1 0) [0.227]

Risk aversion – (7 1 0) [-0.014]

Ambiguity aversion

Age

Female – (0 8 0) [-0.012] – (8 0 0) [-0.275]

German grade# – (8 0 0) [-0.245]

Math grade# – (0 7 1) [-0.198]

No. of siblings

Pocket money per week + (0 8 0) [0.009]

No. of observations 611 389

Mean (pseudo) R² 0.043 0.134



Field behavior (saving, smoking, drinking, body mass index, discipline in school) is predominantly influenced by impatience (delay aversion).

Risk and ambiguity attitudes are poor predictors of field behavior when controlling for impatience (consistent with the literature; see Dohmen et al., 2010).

Policy implications.

Summary – Study 1 Study 1 Study 2 Additional slides


Matthias Sutter, Francesco Feri, Martin Kocher, Peter Martinsson, Katarina Nordblom, and Daniela Rützler Social preferences in childhood and adolescence. A large-scale experiment The study elicits social preferences of 883 teenagers (8-17 years) and classifies them according to five types Selfish Efficiency (Utilitarian) Maximin (Rawls) Inequality aversion (Fehr and Schmidt) Inequality aversion (Bolton and Ockenfels)

Overview – Study 2 Study 1 Study 2 Additional slides


Why study social preferences of children and teenagers? Only recently social preferences of children and teenagers are studied

in the literature. Essential for assessment if models of economic decision making with

social preferences can claim general applicability. Decisions taken by children and adolescents in the real world. Economic/ethics education.

Important applications: cooperation, negotiations,…

Motivation Study 1 Study 2 Additional slides


Literature

Harbaugh et al. (2003) find that young children make considerably

smaller dictator and ultimatum proposals than older children and adults. Boys and relatively tall children make smaller dictator proposals than girls and relatively small children. (310 children aged 7-18 years)

Benenson et al. (2007) find in a dictator game with 360 children aged 4 to 9 years, that older children and children from higher socioeconomic status environments behaved more altruistically.

Houser and Schunk (2007) study gender differences in young age (8-10 years) in dictator games, finding no difference. (151 children)



Literature

Sutter (2007) examines the behavior of 200 children, teens and

university students in an ultimatum game and concludes that children and teens reject unequal offers much more often than university students.

Fehr et al. (2008) find that inequality aversion develops strongly between the ages of 3 and 8. Young children (at age 3-4) behave selfishly, whereas most children at age 7-8 prefer allocations that remove advantageous or disadvantageous inequality. (229 children)



Types

Selfish Efficiency: If a subject maximizes the sum of payoffs, she is classified

as an Efficiency-type (following Utilitarian preferences) Maximin: If she maximizes the minimum payoff in her group of

subjects, she is denoted a Maximin-type (following Rawlsian preferences).

Fehr & Schmidt (1999, henceforth F&S): inequality is measured as difference of the own payoff to the other players’ payoffs

Bolton & Ockenfels (2000, henceforth ERC): inequality is understood as deviation of a subject’s payoff from the average payoff in a group



The experiment – Design

Measurement of selfishness, inequality aversion, efficiency, and maximin preferences in eight simple one-shot distribution “games” taken from Engelmann & Strobel (2004).

Classification Taxation games, Envy games, Rich and poor games

3 possible allocations of money between 3 persons (person 1, 2 and 3) in a randomly formed group.

Only choice of person 2 relevant for final distribution of the payoffs. One of the “games” was randomly selected and paid out. Payoffs distributed in sealed envelopes several days after experiment. To give same incentives to all participants we doubled stake sizes for

students aged 14/15 (proportional to pocket money). Pen and paper experiments in class. 40 minutes (including post-experimental questionnaire)



Participants

Table 4: Number of participants by age and gender

All subjects Subjects with correct answers in

control questions Girls Boys Total Girls Boys Total % valid 8/9 years (3rd grade) 56 60 116 31 33 64 55.2 % 10/11 years (5th grade) 144 95 239 101 65 166 69.5 % 12/13 years (7th grade) 122 88 210 96 74 170 81.0 % 14/15 years (9th grade) 106 63 169 92 54 146 86.4 % 16/17 years (11th grade) 86 63 149 77 56 133 89.3 % Total 514 369 883 397 282 679 76.9 %



Estimations

We conduct a maximum likelihood error-rate analysis of subjects’

decisions following the general lines of the econometric model used in Costa-Gomes et al. (2001).

The econometric model is a mixture model in which each subject’s type is drawn from a common prior distribution over the five types considered in this paper: Selfishness, Efficiency, Maximin, F&S, and ERC.

A subject’s type is assumed to be the same in all eight games, but decision makers are allowed to make errors.



Results - Girls Study 1 Study 2 Additional slides


Results - Boys Study 1 Study 2 Additional slides


Conclusion – Study 2

Already by the age of 10, children have well established social preferences.

Most of subjects can be classified as either selfish or having maximin-preferences.

Inequality aversion is less important overall. Girls tend to be motivated more and more by maximin-preference

when they grow older Boys tend to go for efficient allocations more and more when they

become older.



Appendix: Results

Table 1: Taxation games (payoffs in euro) Game Fx Game Ex Left Middle Right Left Middle Right Person 1 payoff 6.8 7.2 7.6 8.4 6.8 5.2 Person 2 payoff 4.0 4.0 4.0 4.8 4.8 4.8 Person 3 payoff 3.6 2 0.4 1.2 1.6 2.0 Total payoff 14.4 13.2 12.0 14.4 13.2 12.0 Prediction Selfish Left Middle Right Left Middle Right Efficiency Left Left Maximin Left Right F&S Left Right ERC Right Left Choices, percentages Total sample (N = 883) 65.8 19.9 14.3 34.2 10.8 55.0 Boys (N = 269) 58.5 20.9 20.6 46.6 11.2 42.2 Girls (N = 514) 71.0 19.3 9.7 25.4 10.6 64.1 8/9 years old (N = 116) 53.5 18.1 28.5 40.4 17.5 42.1 10/11 years old (N = 239) 54.8 25.5 19.7 35.4 10.1 54.4 12/13 years old (N = 210) 68.6 21.4 10.0 28.2 9.1 62.7 14/15 years old (N = 169) 69.8 19.5 10.7 38.7 7.7 53.6 16/17 years old (N = 149) 84.6 10.7 4.7 30.9 12.8 56.4 Engelmann and Strobel (2004) 86.7 6.7 6.7 40.0 16.7 43.3



Appendix: Results

Table 2: Envy games (payoffs in euro) Game N Game Nx Game Ny Left Middle Right Left Middle Right Left Middle Right Person 1 payoff 6.4 5.2 4.0 6.4 5.2 4.0 4.0 5.2 6.4 Person 2 payoff 3.2 3.2 3.2 3.6 3.2 2.8 3.6 3.2 2.8 Person 3 payoff 2.0 1.2 0.4 2.0 1.2 0.4 0.4 1.2 2.0 Total payoff 11.6 9.6 7.6 12.0 9.6 7.2 8.0 9.6 11.2 Prediction Selfish Left Middle Right Left Left Efficiency Left Left Right Maximin Left Left Right F&S Right Left Right Left ERC Middle Left Middle Left Middle Choices, percentage Total sample (N = 883) 67.2 12.5 20.3 87.9 7.9 4.2 42.7 18.0 39.2 Boys (N = 269) 69.3 11.7 19.0 88.0 7.6 4.4 43.6 14.4 42.0 Girls (N = 514) 65.8 13.0 21.2 87.9 8.0 4.1 42.1 20.7 37.2 8/9 years old (N = 116) 47.0 17.4 35.7 74.8 13.9 11.3 41.4 17.2 41.4 10/11 years old (N = 239) 66.1 13.0 20.9 84.8 9.3 5.9 42.0 10.1 47.9 12/13 years old (N = 210) 69.5 9.5 21.0 92.9 3.3 3.8 45.7 14.3 40.0 14/15 years old (N = 169) 73.4 13.6 13.0 87.6 11.2 1.2 34.3 25.4 40.2 16/17 years old (N = 149) 74.5 10.7 14.8 96.6 3.4 0.0 50.3 28.2 21.5 Engelmann/Strobel (2004) 70.0 26.7 3.3 76.7 13.3 10.0 60.0 16.7 23.3



Appendix: Results

Table 3: “Rich and Poor” games (payoffs in euro) Game R Game P Game Ey Left Middle Right Left Middle Right Left Middle Right Person 1 payoff 2.0 3.2 4.4 3.2 4.4 5.6 5.2 6.8 8.4 Person 2 payoff 4.8 4.8 4.8 1.6 1.6 1.6 3.6 3.6 3.6 Person 3 payoff 1.6 1.2 0.8 2.8 2.4 2.0 2.0 1.6 1.2 Total payoff 8.4 9.2 10.0 7.6 8.4 9.2 10.8 12.0 13.2 Prediction Selfish Left Middle Right Left Middle Right Left Middle Right Efficiency Right Right Right Maximin Left Left Middle Right Left F&S Right Left Left ERC Right Left Left Choices, percentage Total sample (N = 883) 46.3 27.5 26.3 37.4 21.7 40.9 47.6 15.3 37.1 Boys (N = 269) 38.6 28.5 32.9 31.4 20.9 47.7 40.5 11.4 48.1 Girls (N = 514) 51.8 26.8 21.5 41.6 22.4 36.0 52.7 18.2 29.1 8/9 years old (N = 116) 49.1 24.1 26.7 35.3 21.6 43.1 44.8 16.4 38.8 10/11 years old (N = 239) 45.4 19.3 35.3 39.8 19.3 41.0 51.1 19.0 30.0 12/13 years old (N = 210) 50.7 21.5 27.8 41.0 24.8 34.3 50.5 15.2 34.3 14/15 years old (N = 169) 38.5 44.4 17.2 30.8 21.3 47.9 39.1 13.0 47.9 16/17 years old (N = 149) 48.0 32.4 19.6 37.6 22.2 40.3 50.0 11.5 38.5 Engelmann/Strobel (2004) 53.3 20.0 26.7 33.3 6.7 60.0 36.7 23.3 40.0


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Economic preferences of kids and adolescents - ncer.edu.au · Economic preferences of kids and adolescents Martin Kocher University of Munich, University of Gothenburg, and CESifo