Systematic Differences in Beliefs About Others in Strategic Interactions

Abstract

Individuals' preferences for outcomes and their expectations about other players' choices that in uence the outcome govern strategic interactions. The common assumption that expectations about others are mutually consistent across players allows researchers to in- fer preferences from observed strategic decisions. In this paper, I show how players beliefs about other players choices systematically depart from this assumption and explain the consequences for the inference of preferences based on strategic choices. In the context of altruistic preferences, I document a relationship between an individ- ual's preferences and his (implicit or explicit) expectations of others' actions in modi ed dictator games. This relationship is beyond what false consensus or a simple correlation between beliefs and preferences can account for and is consistent with a more fundamental account of projection of preferences. I study the impact of systematic belief di erences on players strategic actions in a trust-dictator game. I show that preference incongruencies across di erent roles in a trust-dictator game are in line with preference projection. Finally, I demonstrate biases in the estimation of preferences from decisions in this strategic game under the assumption of mutually consistent beliefs.