Reference Dependent Altruism

In view of behavioral patterns left unorganized by current social preference theories, we propose a theory of reference dependent altruism (RDA). With RDA, one's degree of altruism increases at reference points. It induces equity and efficiency effects that are conditional on whether or not payoffs meet reference points. We verify the theory first by experimentally analyzing majority bargaining, where observed behavior contradicts existing theories but confirms RDA. Using parameter estimates from majority bargaining, we then make out-of-sample predictions for Charness-Rabin, Engelmann-Strobel, and Bolton-Ockenfels games. RDA organizes these seemingly disparate games out-of-sample, which validates our hypothesis that pro-social behavior primarily relates to reference points.