Abstract
We experimentally investigate behavior and beliefs in a sequential prisoner’s dilemma. Each subject had to choose an action as first-mover and a conditional action as secondmover. All subjects also had to state their beliefs about others’ second-mover choices. Using the elicited beliefs, we use a novel and intuitively appealing hit-rate appraoch to compare the explanatory power of a few current models of social and moral preferences. The data show clear differences in explanatory power between the preference models, both without and with control for the number of free parameters. The best-performing models explain about 80% of observed behavior. We also compare the results with a conventional maximum-likelihood method, and conclude that results by and large agree. We finally use the estimated preference parameters to identify biases in subjects’ expectations. We find a consensus bias (whereby subjects believe others behave like themselves) and a slight optimism (whereby subjects overestimate probabilities for favorable outcomes).