Hierarchical Bayesian analysis of biased beliefs and distributional other-regarding preferences (Q2351211)

Summary: This study investigates the relationship between an actor's beliefs about others' other-regarding (social) preferences and her own other-regarding preferences, using an ``\textit{avant-garde}'' hierarchical Bayesian method. We estimate two distributional other-regarding preference parameters, \(\alpha\) and \(\beta\), of actors using incentivized choice data in binary Dictator Games. Simultaneously, we estimate the distribution of actors' beliefs about others \(\alpha\) and \(\beta\), conditional on actors' own \(\alpha\) and \(\beta\), with incentivized belief elicitation. We demonstrate the benefits of the Bayesian method compared to it's hierarchical frequentist counterparts. Results show a positive association between an actor's own \((\alpha,\beta)\) and her beliefs about \textit{average} \((\alpha,\beta)\) in the population. The association between own preferences and the \textit{variance} in beliefs about others' preferences in the population, however, is curvilinear for \(\alpha\) and insignificant for \(\beta\). These results are partially consistent with the cone effect [\textit{J. Iedema}, The Perceived consensus of one's social value orientation. Tilburg University: Tilburg, Netherlands (Ph.D Dissertation) (1993); the authors, ``Beliefs about the social orientations of others: a parametric test of the triangle, false consensus, and cone hypotheses'', J. Exp. Soc. Psychol. 48, No. 1, 45--54 (2012; \url{doi:10.1016/j.jesp.2011.07.009})] which is described in detail below. Because in the Bayesian-Nash equilibrium concept, beliefs and own preferences are assumed to be independent, these results cast doubt on the application of the Bayesian-Nash equilibrium concept to experimental data.