Non-isolation, reversals, and social preference

Abstract

Recent evidence suggests that non-isolation behavior could significantly impact laboratory experiments using the random problem selection (RPS) payment mechanism through lottery integration. Theoretical work also highlights social preferences that can violate statewise monotonicity, a necessary and sufficient condition for incentive compatibility with the RPS payment mechanism in case of lottery integration. Additionally, non-isolation can influence decisions through non-consequential dynamic concerns. In a series of three simple and parsimonious experiments and three tests, we examine the occurrence of the two kinds of non-isolation and reversal behaviors. We find significant evidence for positive reversal behavior, where subjects are more likely to make a fair choice if there is an alternative possible realization of an unfair outcome (which they chose themselves). In addition, the lower bounds for the prevalence of non-isolation in terms of lottery integration and dynamic non-consequential concern are estimated to be approximately 10% and 20%, respectively.