Nash Equilibria of Dictator Games: a New Perspective

Abstract

Situations where one gives up own material payoff in order to increase someone else’s material payoff are ubiquitous. In experimental economics, they are modelled as ‘dictator games’ and have been analyzed in great depth. What has gone unnoticed is that the games studied in the laboratory differ critically with respect to whether the underlying context is such that one player only gives and another player only receives, or whether players give and take at the same time. Across the experimental literature, there has been a shift from the former –‘non-interactive’ – dictator game implementation to the latter – ‘interactive’ – dictator game implementation. In this paper, we therefore compare these two situations with respect to their equilibrium predictions assuming the same underlying other-regarding distributional preferences in both cases. It turns out that the Nash equilibria of interactive dictator games are characterized by more extremal payments than optimal play in non-interactive games. In particular, the Nash equilibrium results in zero giving in the interactive setting when players are sufficiently numerous even if substantially (but not perfectly) altruistic. Our findings have welfare implications and allow for a completely different interpretation of much of the experimental data on dictator games.