Moral Costs and Rational Choice: Theory and Experimental Evidence

The literature exploring other-regarding behavior uncovers interesting phenomena, yet the extent the data subscribes to foundational assumptions of economics is not well understood. We explain how recent work challenges rational choice theory as well as its special case, convex preference theory. We propose a new axiom that modifies classic choice theory and exhibits choice monotonicity to observable reference points, establishing consistency with otherwise-anomalous data. We design experiments that provide a direct test of the new axiom. Data from our experiments and previous dictator experiments support the new axiom. We also apply the new axiom to several sequential strategic games