What are Social preferences?
Social preferences describe the fact that people care about the outcomes of others, not just their own. People exhibit altruism (giving to others at a cost to themselves), inequality aversion (preferring fair distributions), and reciprocity (rewarding cooperation and punishing defection).
How it works
Standard economic theory assumes people are purely self-interested, but decades of experimental evidence from dictator games, public goods games, and trust games show that most people give away 20-50% of endowments even when they could keep everything. Fehr and Schmidt’s (1999) inequality aversion model and Rabin’s (1993) fairness equilibrium formalize these preferences.
Applied example
A crowdfunding campaign that shows how many others have already contributed leverages social preferences: potential donors are motivated both by reciprocity (others gave, so I should too) and inequality aversion (I do not want to free-ride while others contribute).
Why it matters
Social preferences explain cooperation, charitable giving, and why purely self-interested incentive designs often backfire in workplaces, markets, and communities.
