Punishing Unacceptable Behavior Janhavi Nilekani and Sarah Ong

The Question When one experiences unacceptable behavior, how much of a loss in material (physical) payoff would one be willing to suffer to punish the perpetrator, even if there will be no further direct interaction beyond the possible punishment? By Person Q punishing Person R we refer to Q suffering a cost in order to cause a decrease in R’s utility, whether it be for the purpose of revenge or for the correction of unacceptable behavior.

Theory and Hypotheses 1) People are willing to punish unacceptable behavior 2) Acceptable behavior is likely to be unpunished 3) Opportunity cost vs. Wallet (Out-of-pocket) cost: One is more willing to suffer an opportunity cost than an out-of-pocket cost while punishing. 4) Absolute costs to self: One is more likely to punish when the absolute costs to one-self are smaller. 5) ‘Ratio of Punishment’: One is more likely to punish if the ‘ratio of punishment’ is larger.

Experimental procedure 1.Each subject is assigned an identification number based on their randomized seating. Show candy to the subjects and inform them that that is what they will earn. Real payoffs of candy were used to encourage subjects to participate attentively and to respond truthfully. 2.Stage 1: Each subject is assigned the role of a Decider. 3.Each Decider is paired with another person in the room, who is designated the Receiver and who was unknown to them. (The Receiver for each subject was one of the experimenters.) 4.Each pair is given a pool of 10 candies ‘to share’. The Decider chooses how to split up the candies. For example, if the Decider chooses to keep 3, he leaves 7 for the Receiver. These numbers are recorded on pieces of paper which are then handed to the experimenter. 5.Each subject is simultaneously a participant in two pairs – one in the role as a Decider, as described above, and the other in the role as a Receiver.

6.Half the Receivers (those with odd ID numbers) get a ‘Fair’ decision (they receive 5 candies) shown on a slip of paper to them while the other half gets an ‘Unfair’ decision (they receive 0 candies) from their Deciders, who are the experimenters. 7.Each subject Receiver responds to the Deciders' (experimenters') decision by answering a series of questions. Each Receiver is told that he and his Decider is to be given another 10 candies each. In each question, the Receiver has to pick between one of two choices which can affect the candies received by him and the Decider. The subjects are informed beforehand that one of the questions will be selected by random choice, and the choice made for that question will be implemented. 8.Subsequently, in Stage 2 of the experiment, each subject is a Receiver to a different Decider (i.e. the other Experimenter). In this case, each Receiver responds to a different decision from earlier, e.g. if they got the ‘fair’ decision before, they receive the ‘unfair’ decision now. 9.At the end of Stage 2, subjects were asked to fill up a survey form

21 questions per stage The last three questions targeted individual factors directly, and were more like independent survey questions. For example, Question 19 compared opportunity cost and wallet cost directly, keeping the absolute cost (1 candy) and ratio-of- punishment (3x) the same. The series of questions was randomized for each stack of 21 questions. Each subject had to answer the same 21 questions in each stage. Each question had two choices, of which subjects had to pick one. For 18 of the questions, one of the choices was a maintenance of the status quo (i.e. each Receiver and his Decider would each keep 10 new candies), and the other choice was a unique permutation of the following variables: 1) Opportunity cost versus wallet cost, 2) Absolute cost (1 or 2 or 3 candy/candies), 3) Ratio-of-punishment (1x, 2x or 3x).

Results Hypothesis 1: There is a positive probability of punishment: people are willing to punish unacceptable behavior at a cost to themselves. Results: Across all conditions, there was a 13.83% likelihood that subjects would choose to punish at a cost to themselves. In concurrence with our hypothesis, people are willing to punish unacceptable behavior, even though all pairs were anonymous to the subjects at the time of decision- making Hypothesis 2: The likelihood of punishment is greater when the subject is treated unfairly. Results: As predicted, subjects are far more likely to punish unacceptable behavior than acceptable behavior. When treated fairly, subjects were 6.12% likely to punish the Decider. When treated unfairly, subjects were 21.54% likely to punish the Decider. Thus, subjects are percentage points more likely to punish their partner when treated unfairly. This difference of means was significant at p< Moreover, the likelihood of punishing fair behavior is heavily weighted by one of the 21 subjects who frequently punished fair behavior.

Hypothesis 3: The likelihood of punishment is greater when the cost of punishment is an opportunity cost, rather than a wallet cost Results: Contrary to our predictions, we found no statistically significant difference in the likelihood of punishment if the subject's cost was a wallet cost or an opportunity cost. However, the difference-of-means was in the expected direction: under the opportunity cost condition, subjects were 3.17 percentage points more likely to punish (p-value=0.19).

Hypothesis 4: The likelihood of punishment is greater when the absolute cost to the subject is smaller. Results: Recall that the subjects faced 3 conditions: An absolute cost of 1 chocolate, 2 chocolates, or 3 chocolates. Contrary to our expectations, there was no statistically significant difference in the likelihood of punishment under the 3 conditions. Subjects did not seem to consider the absolute cost to themselves while deciding to punish, at least in the context of the experiment. Perhaps the absolute costs to themselves were too small to make any difference. When we directly gave subjects a choice of an absolute cost of 1 chocolate versus an absolute cost of 3 chocolates, with the cost to the perpetrator being thrice the cost to the subject in both cases, 71% of the subjects under the unfair treatment chose the lower absolute cost of 1. This is in line with our expectation that people prefer lower absolute costs when punishing. Furthermore, as expected, when subjects were treated fairly, 90% chose the lower absolute cost of 1 chocolate. When one faces acceptable behavior, there is no incentive to bear a high cost to punish.

Hypothesis 5: The likelihood of punishment is greater when the ratio of the other person's loss to the subject's cost is higher. Results: As predicted, subjects were far more likely to punish unacceptable behavior as the loss to the perpetrator increased relative to their own cost. Overall, when the cost to the Decider was 2 or 3 times the cost to the subject, subjects were far more likely to punish unacceptable behavior, compared to when the cost to the Decider and subject was equal. The difference in the likelihood of punishment if the ratio-of-punishment was 2 or 3 was insignificant, though it approached statistical significance. The same results were obtained when we restricted the responses to the subjects who were treated unfairly, but the size of the difference-in-means across the three ratio-of-punishment treatments increased. EXTENSIONS 1.A) No anonymity (subjects know from the beginning that they would find out their partners at the end); B) Multiple rounds of interaction between the same pairs 2.One-to-one relationships vs Many-to-one relationships