Social Preference Theory: Controversy and Future Development

Social preference theory has been developed since the 1990s to explain people’s non-selfish behavior observed in economic experiments. The theory extends the conventional utility-maximization framework by incorporating people’s other-regarding concerns such as fairness, reciprocity, altruism, and inequality aversion. In recent years, existing social preference models have been challenged by the interdisciplinary research from psychology, sociology, management and other behavioral sciences. The latest literature includes factors such as group identity, heterogeneity in culture and social background, biological and psychological characteristics into the analytical framework. Meanwhile, the Santa Fe institute researchers discuss the prevalent pro-social behavior from an evolutionary biological perspective. Altruism, cooperation and reciprocity, which sustain the survival and development of ethnic groups, are essential for the long-term evolution process, from which social norms emerge and stable institutions become possible. In the past decade, the progress of social preference theory also had significant impacts on empirical studies in labor economics, finance, macroeconomics and political economics. The theory provides practical tools for researchers in these fields to better interpret empirical data, to uncover the underlying behavioral mechanisms, and to improve policy design.