Insensitivity to Prices in a Dictator Game

Abstract

We show that violations of demand theory are more numerous than previously reported in experimental two-player dictator games. We then apply a new procedure consisting of income-compensated price adjustments that makes the choice sets rationalizable. We introduce a weighted price function that shows that violations of revealed preference can be interpreted as the dictator's insensitivity to the price of the dictator's allocation relative to the responder's allocation. Our paper is the first to rationalize violations of demand theory in dictator games by examining the relationship between violations of GARP and prices. We suggest that weighted prices, and not only preferences, may be a component of decision making in dictator games