Staff Report, Federal Reserve Bank of New York 365
Social interdependence is believed to play an important role in how people make individual choices. This paper presents a simple model constructed on the premise that people are motivated by their own payoff as well as by how their actions compare with those of other people in their reference group. I show that conformity of actions may arise either from learning about the norm (social learning), or from adhering to the norm because of image-related concerns (social influence). To disentangle the two empirically, I use the fact that image-related concerns can be present only if actions are publicly observable. The model predictions are tested in a 'charitable contribution' experiment in which the actions and identities of the subjects are unmasked in a controlled and systematic way. Both social learning and social influence seem to play an important role in the subjects' choices. In addition, individuals gain utility simply by making the same choice as the reference group (social comparison) and change their contributions in the direction of the social norm even when their identities are hidden. Once the identities and contribution distributions of group members are revealed, individuals conform to the modal choice of the group. Moreover, I find that social ties (defined as subjects knowing one another from outside the experimental environment) affect the role of social influence. In particular, a low-contribution norm evolves that causes individuals to contribute less in the presence of people they know.