The Behavioral and Neural Bases of Social Economic Decision-Making

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Virginia Tech

Social economic decision-making considers the well-being and emotions of others. Unlike traditional economics which routinely assumes that individuals care only about their own outcomes, behavioral economics and neuroeconomics offer research strategies which help us explore our social motivations. This dissertation consists of three essays studying the underlying behavioral and neural mechanisms of individuals' social economic decision-making. The analyses focus on investigating experimentally how humans make decisions in three distinct social economic environments.

Chapter 2 examines how individuals react to hold-up when explicit promises are available. Hold-up happens when two parties can form an incomplete contract to cooperate, but the agreement may fall apart due to concerns about the other party gaining bargaining power. We propose that a belief-dependent frustration anger model can explain behavior about investment, cooperation, and costly punishment in a hold-up environment. We show experimentally that communication improves cooperation and increases efficiency. Promises lead to cooperation, and broken promises lead to costly punishment.

Chapter 3 explores threats' deterrence effect and credibility in an ultimatum bargaining environment where two parties can both benefit over trade but have a conflict of interests. We show that a belief-dependent frustration anger model captures the relationship among messages, beliefs, and behavior. Our design permits the observation of communicated threats, credibility, and deterrence. As we hypothesize, messages convey intention to punish the opponents (threats) changes players' expectations, that first movers are largely deterred by the threats and second movers' threats are credible. Threats lead to deterrence and greater propensity for costly punishment.

Chapter 4 investigates the neural basis of individuals' charity donation behavior in a modified dictator game. The right temporoparietal junction (rTPJ) has been associated with social decision-making, but the exact neural mechanism of charitable giving remains unknown. In our experiment, participants allocate money between themselves and a charity in a graphical revealed preference task, that measures both parameterized other-regarding preferences and economic rationality (Monotonicity, WARP, and GARP). We find evidence for a causal role of the rTPJ in determining fairness preferences and economic rationality.

Social Decision-Making, Other-Regarding, Expectation, Communication, Emotion, Psychological Games