Sorting with Shame in the Laboratory

Sorting with Shame in the Laboratory David Ong Peking University HSBC Business School, Shenzhen (beside Hong Kong) Papers available: www.davidong.net

Theory of Sorting with Shame • From “Fishy Gifts: Bribing with Shame and Guilt” (Ong 2009) • Drug firms spend billions on marketing to doctors. Much of it in “gifts”. • Yale incident • After Drug Rep. handed out $150 reference books, she remarked, “One hand washes the other.” • By next day, half the book were returned • Why give gifts when reciprocation can’t be monitored? • Why were books returned after announcement? • Why would Drug Rep. want books to be returned?

Inducing Self-Fulfilling Reputation with an Announcement of Beliefs • In “Fishy Gifts: Bribing with Shame and Guilt”, • Assumed that people care about others’ beliefs, • Then, Yale incident can be explained as an attempt to induce a self-filling group reputation, one that sorts out those who are least likely to fulfill it. • Announcement would cut costs if doctors who are most averse to the belief that they would reciprocate are also the least likely to accept. • Reciprocation driven by guilt aversion. • Rejection is driven by shame aversion. Doctors sorted out of the belief that they would reciprocate by rejecting.

Extension: Sorting into Professions by Non-Monetary Preferences • Lab evidence that people will sort into or out of opportunities to be altruistic (Lazear et al 2009). • Some evidence people who go into public sector have higher intrinsic motivation or are altruistic, as measured by unpaid labor (Kolstad and Lindkvist 2010). • People who become economists tend to more selfish (Carter and Irons 1991).

Can the Shame of Scandal Sort People Out of a Profession? • Can the shame from scandal (Enron) sort the more trustworthy people out of a fiduciary field (accounting)? • Fiduciary: expert with wide and unobservable discretion, who acts on behalf of others, e.g., doctor, credit rater, manager • Reputation of a field is a public good among members: every member benefits from it, but each member has an incentive to exploit it. • See Tirole 1995 for a theory of group reputation. • Requires experimental approach • Don’t measure shame sensitivity at interview • Can’t measure those who didn’t apply

Outline of Experiment • 1) Subjects recruited with posters • “Earn $10 in 40 minutes” • 2) Subject (Bob), arrives, takes anonymous personality test, and self-scores • TOSCA-3 test for guilt and shame sensitivity • 17 scenarios, 50 questions, 20 minutes • Bob told test will be used to predict his level of generosity to a well known charity

Outline of Experiment • 3) Before prior subject (Alice), Bob was asked to estimate how much ‘generous’ and ‘ungenerous’ types of subjects would contribute of their $10 earnings to (well known charity) • 48 subject’s predictions: • `Generous’ contribute $6+ (average) • `Ungenerous’ contribute $0

Outline of Experiment 3) [Treatment occurs here] 4) Alice reads to Bob (control group): "Do you want to choose the private (room 109) option, where you can contribute whatever you like or contribute $5 here as you hand in the test?“ 5) Bob is paid $10 and follows through on choice Result in control group: 20/22 contributed privately, less than $2 Thus, only 2/22 contributed publicly $5

Treatment • 3.1) Alice asks Bob, “Is your score below (high threshold score)? • 3.2) Alice announces: “According to our past experience, you are not likely to contribute more than $2, if you choose the private (room 109) option.”

Results • Now, 10/26 contributed publicly $5 • P-value=2% (max probability under the hypothesis of no difference with control) • TOSCA-3 Score for shame aversion score • Subjects who chose public: 49 • Subjects who chose private: 45 • P-value 0.16

Conclusions • Mere belief that a subject would exploit the unobserved discretion of a fiduciary-like situation can deter that subject from entering such a situation • Scandals that create such beliefs in the public could change the future personnel of fiduciary fields • People who went into accounting after Enron would have been less shame averse…and less trustworthy?

Follow up Studies Who is being sorted? More trustworthy people? How important were shame and guilt for choosing to contribute publicly? To the level of private contributions?

Experimental Work on Shame • Tadelis, “Power of Shame”, 2008 • Betrayal of trust decreased with probability of being observed and the number of people observing. • Key Differences between “Power of Shame” and “Sorting with Shame” • Treatment subjects did not do anything bad • Would have been unobservable if they did • Announcement of mere beliefs used to induce shame • Small number of observers

Follow up Experiments • Was guilt increased by announcement? • What if the message had been optimistic? • Methodological issues • TOSCA-3 primed subjects for shame? • Results robust to: • Changes in order of choice and announcement? • Changes in message (framing)?

Creating Shame in the Laboratory • Problems: Create an ethical standard that subjects might violate without also violating ethical norms of economics experimentalist • No deception • No harm • Respect budget constraint • Create a credible announcement of beliefs for treatment effect (without lying)

Creating a norm in the lab • Use the commonly (though implicitly) used generosity norm • Problem 1: • Heterogeneity of shame norms and asymmetric information • Subjects may in fact or could pretend to live by other norms • Unrepresentativeness • Subjects may escape shame by regarding ungenerous action as unrepresentative of them

Creating a norm in the lab • Solution: Creating the standard by eliciting the norm from the subject • They claim that it’s the norm from their perspective • Shame of hypocrisy will be a disincentive to publically violate norm, even if not really theirs • Problem 2: Shame is likely to be weak in front of one stranger • Accentuating whatever shame there might be through a scientific test TOSCA-3 • Hypotheses: • Shame increases with objectivity of standard violated, higher if there is a scientific basis • Shame increases with practice in feeling shame

Inducing Shame in the Lab • Self-Scoring of TOSCA-3 • Allows for treatment by revealing information of the score • Why not pay subjects for their estimates of likely generosity of other subjects? • Needed revelation of shame inducing belief • Didn’t need truthful revelation of subjects belief • Method does not violate truthfulness requirement • Prediction using TOSCA-3 not untrue • Low possible harm, compared to insight into an important question

Inducing Shame in the Lab • Alternative Design: Pay subjects for assessment of generosity of other subjects • What standard to measure accuracy? • Pay by nearness to average estimates of other subjects is susceptible to beauty contest problem • Average is not going to be 10

Treatment • The question: “Is your score above 438?” is a decoy • The announcement “According to our past experience, you are not likely to contribute more than $2, if you choose the private option.” is true for everyone. • Ethical issues • Withholding information and lying • Vacuous statements are lies? • Leaving room for loose/false conventional ways of thinking and deception

Things that could have gone wrong • Unobservability of private option not credible • Predicts no treatment effect • Contribution to DWB not credible • Predicts no treatment effect • Shame in the untreated private option • Predicts no treatment effect • Treatment effect was due to self-image preference but not shame • Self-image shouldn’t have been affected by announcement of observers beliefs about what subject would do privately

Things that could have gone wrong • Use of previous subject for announcement undermined independence • Decision involved perfect information except for beliefs • Any other relevant information passed between subjects could only have been about beliefs • Subjects guessed that the experiment was to induce shame • Surely they would have discounted the treatment and there would have been no effect

Things that could have gone wrong • Treatment effect was due to experimenter demand • Possible information about experimenter demand was constant across both treatment and control • The possibility of the announcement was constant across control and treatment • The content of that announcement was predetermined (exogenous) by prior subjects contributions, so that couldn’t have resulted in extra experimental demand to get the treatment effect • Almost significant sorting according to TOSCA-3

Things that did go wrong • Subject came in on each other • Data dropped from sample • Note this factor is exogenous • Instructions were vague • Could make experiment more opaque • Does not necessarily bias if vague in both treatment and control

Randomization and Independence • Random assignments guarantees independence between subjects, but the converse is not true • There are other ways of getting independence • Exogenous factors could give you independence • Key question: are you changing the distribution (dropping data points) in fact or by your intent?

Randomization and Independence • Including pilot experiment data in the proper sample biases your sample • `Pilot’ implies `change design or drop data points’ if you don’t get significance • Using the rule “Only adopt the design that gives you significant results” as long as you restart the sampling after fixing the design

Show data.

Randomization and Independence • Doing treatment before control in order to avoid paying for control if no treatment effect • A kind of piloting • Increasing sample size because other say it’s too small • Doesn’t bias • Increasing sample size due to a lack of significance does bias • Implies stopping when you have significance – dropping data points • Other reasons to increase sample size, like rebalancing sample between treatment and control does not bias • Your intention matters • My case: mistake of unbalanced sample was initiated by complain of lack of significance

Sorting with Shame in the Laboratory