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Yang Zhang, Social Preferences in Network Games
Social Preferences in Network Games: Theory and Laboratory Evidence

Yang Zhang1
Center for Behavioral Economics, National University of Singapore
This paper investigates social preferences in network games, where the network structure
determines whose action affects the payoff of which player. We develop alternative theories that
incorporate inequality aversion and welfare preference into the context of network games, and test
their implications in a laboratory experiment. We observe that subjects contribute more than the
amount that would maximize their monetary profit, and subjects at the central network positions
contribute more than those at the periphery. These anomalies suggest that subject behavior is
driven mainly by the welfare preference and not as much by either inequality aversion or self
interest. We then estimate the behavioral parameters and interpret the results in relation to the
network topology.
Keywords: social and economic networks, game theory, social preference, laboratory experiment
JEL classifications: L14, C72, D91, C92
1This project was supported by the National Natural Science Foundation of China (Grant No. 71501108) and
Beijing Natural Science Foundation (Grant No. 9164030).
Electronic copy available at: https://ssrn.com/abstract=3059710

1. Introduction & Literature Background
The notion of externality is central in studies of the economics of networks. In the presence of
economic externality, one derives a payoff not only from the action taken by oneself, but also from
the actions of others in the society. While conventional research assumes that an individual activity
influences the profit of everyone in the population (see e.g. (Rohlfs, 1974), (Katz & Shapiro, 1985),
(Farrell & Saloner, 1986)), scholars have begun to focus on “local externality”, where one’s payoff
is affected by the actions of a specific subset of individuals (called one’s neighbors) in the
population. For example, if one person adopts a new technology to reduce pests on his farm, then
nearby farms (and only the farms nearby) will also benefit. If one country takes effort to reduce the
pollution, the environment of adjacent countries also improves. In pharmaceutical or high tech
industry, research discoveries by one firm may spillover to its trade partners (neighbors). The
theories involving local externality offer insights into how the outcomes of games and social
welfare are shaped by the interaction (network) structure. We refer interested readers to the
literature reviews by (Jackson & Zenou, 2015) and (Jackson, Rogers, & Zenou, 2017).
However, most theoretical works on games on networks assume that individuals pursue their
own self-interests, which would seem not to apply in many relevant social settings. For example in
a friendship or kinship network, agents may take into account the well-being of their friends or
relatives (neighbors) when playing the neighborhood game. In the workplace, employees may
compare their earnings and performance with those of their colleagues (neighbors), which together
shape their utilities. Collaborators on a project, or coauthors on a paper, may place the goal of their
team prior to their individual gains. This gives rise to the study of other-regarding preferences –
see the seminal discussions in (Kahneman, Knetsch, & Thaler, 1986a) and (Kahneman, Knetsch,
& Thaler, 1986b), as well as models and analyses in (Fehr & Schmidt, 1999), (Bolton & Ockenfels,
2000), (Charness & Rabin, 2002), and the references therein. Along this line, our paper is among
the first to bridge the gap between research on network games and research on social preferences.
Through both theoretical modeling and laboratory experiments, we demonstrate the
significance of incorporating social preferences into the analysis of games on networks. We
develop alternative models that incorporate aversion to inequality or pursuit of welfare into the
neighborhood games. These models produce qualitatively different predictions, which we test using
data pertinent to different network configurations. The welfare preference is found to be more
important than inequality aversion in explaining subjects’ behavior.
In our model of inequality aversion [resp. welfare preference], players care not only about their
pecuniary payoffs, but also about the fairness of the payoff distribution within their neighborhood

[resp. welfare within their neighborhood]. In that sense, our models extend the seminal works of
(Fehr & Schmidt, 1999) and (Charness & Rabin, 2002) into a network context. Further model
comparisons based on empirical data reveal that the welfare model is more likely to capture subject
behavior than is inequality aversion.
This paper contributes to theories of network games. (Bramoullé, Kranton, & D'Amours, 2014),
(Bramoullé & Kranton, 2007), and (Ballester, Calvo-Armengol, & Zenou, 2006) all investigate
games with linear best replies. The games they study exhibit either strategic substitute or strategic
complement. Another school of research studies network games under incomplete network
information; example include (Sundararajan, 2007) on strategic complementary games, as well as
(Galeotti, Goyal, Jackson, Vega-Redondo, & Yariv, 2010) on such games and also on games with
strategic substitutes. In addition, there is also a remotely related literature that concerns games with
strategic substitutes on endogenously formed networks: (Galeotti & Goyal, 2010), (Cho, 2009),
(Hojman & Szeidl, 2008) 2. (Fainmesser & Galeotti, 2016), (Bloch & Quérou, 2013), (Candogan,
Bimpikis, & Ozdaglar, 2012) study the pricing issues based on network games. (Elliott & Golub,
2013) study the design of networks that implement the Pareto-efficient outcomes of a public goods
game. For more comprehensive reviews on the literature of network games, see the recent surveys
of (Jackson & Zenou, 2015) and (Jackson et al., 2017). In all the works cited so far, a common
assumption is that individuals care only about their own payoff. In contrast, the theories we explore
consider pro-social motives and assume that the agent’s utility is also affected by the payoffs of
others in her network neighborhood. In the network game literature, (Bourlès, Bramoullé, & Perez-
Richet, 2017) and (Ghiglino & Goyal, 2010) are in a similar spirit to our work. (Ghiglino & Goyal,
2010) assume that the player derives utility from comparing her own consumption with that of her
neighbors. However, the comparison in our model occurs between players’ payoffs, rather than
between their levels of consumption. We thus derive qualitatively different insights than does
(Ghiglino & Goyal, 2010).3 (Bourlès et al., 2017) examines a kind of player utility that resembles
our networked welfare preference. However, they study a game of linear transfers while our game
features nonlinear public goods. We also study inequality aversion in network games, which is not
2 The literature devoted to network formation, which dates back to the seminal works of (Jackson & Wolinsky,
1996) and (Bala & Goyal, 2000), constitutes a separate branch of research on social and economic networks.
We are aware of that literature, but will not include it in the review given the focus of our own research.
Interested readers can find more relevant discussion in the survey papers cited in the text, as well as in
(Jackson, 2008) and (Goyal, 2009).
3 For example, the player’s utility is negatively affected by the consumption of her neighbors in (Ghiglino &
Goyal, 2010), but it is not necessarily true in our model.

present in (Bourlès et al., 2017). Besides the differences noted above, our work is distinguished
from both (Bourlès et al., 2017) and (Ghiglino & Goyal, 2010) by our adoption of an experimental
approach.
Directly related to our paper is a handful of laboratory studies on network games. Earlier works
– of which (Keser, Ehrhart, & Berninghaus, 1998), (S. K. Berninghaus, Ehrhart, & Keser, 2002),
(Cassar, 2007), (Corbae & Duffy, 2008) are representative – consider only bilateral (coordination
or cooperation) games played between each pair of connected players. This stream of research is
reviewed in (Kosfeld, 2004). More recent experimental works, e.g. (Judd, Kearns, & Vorobeychik,
2010), (Rosenkranz & Weitzel, 2012), (S. Berninghaus, Güth, & Schosser, 2013), (Charness, Feri,
Melendez, & Sutter, 2014), (L. Boosey & Issac, 2016), and (L. A. Boosey, 2017), examine games
that one plays multilaterally with all neighbors. More specifically, the games explored in Judd et
al. (2010) involve coordination, and those in Rosenkranz and Weitzel (2012), (S. Berninghaus et
al., 2013), (L. Boosey & Issac, 2016) and Boosey (2017) all feature public goods.4 (Charness et al.,
2014) examine games under both complete and incomplete information. Our work falls into the
latter (multilateral game) category, but it differs from the existing literature in two important ways.
First, we develop formal behavioral models, in the context of network games, of both inequality
aversion and welfare preference. Note that these models apply to more general network structures
than the ones explored in prior experimental literature. Second, we test competing hypotheses on
network behavior, estimate the behavioral parameters, and interpret the estimation results in
relation to the network topology.
This paper is also akin to the research on social comparison, which examines how an agent’s
behavior changes in response to the influence of her peers. The majority of the literature focuses
on the case where individuals compare their attributes with the aggregate of the entire group – for
instance, the average or median score across the population (see, among others, (Frank, 1985),
(Hopkins & Kornienko, 2004), (Chen, Harper, Konstan, & Li, 2010), (Card, Mas, Moretti, & Saez,
4The public goods setting in (Rosenkranz & Weitzel, 2012) borrows from that of (Bramoullé & Kranton, 2007),
and it exhibits nonlinearity. (S. Berninghaus et al., 2013), (L. Boosey & Issac, 2016) and Boosey (2017)
investigate linear public goods, which is a classic environment for experimental research. In (S. Berninghaus
et al., 2013), players on a square network choose both the size and the location of a contribution, which
generate a geographically decayed benefit for neighbors. In (L. Boosey & Issac, 2016), the public goods
contribution occurs on a complete network, whereas monitoring and punishment are restricted by some
specific network layouts (i.e. complete network, circle, or a particular asymmetric architecture). (L. A. Boosey,
2017) contrasts the behavior of subjects on a circle network who observe their neighbors’ average payoff (or
average contribution) with that of subjects who are informed of the average payoff (or average contribution)
with regard to all players.

2012)). Yet there are some recent studies (e.g. (Roels & Su, 2014)) that inspect social comparison
when the agents are exposed to full group information. Such exposure means, in our terminology,
that the reference network is complete (i.e. everyone’s activity is visible to everyone else).
Furthermore, (Immorlica, Kranton, Manea, & Stoddard, 2017) investigate social comparison in the
presence of an explicit reference network. In their paper, social status is defined locally (i.e. players
compare only with their neighbors) and the comparison is in one direction (i.e. players incur
disutility only when their status is inferior to that of another player). Our work is distinguished from
the literature on social comparison primarily by our consideration of payoff externalities. That is,
we consider the case where neighbors can not only observe each other’s earnings, but can also
affect each other’s earnings by their own actions. As such, the network in our study does not only
function as a reference structure (“who receives information on whom” or “who is visible to
whom”), but also defines a payoff structure (“whose decision affects whose profit”). That explains
why our findings deviate substantially from those of works in the social comparison vein. For
instance, we observe that subjects are more motivated to maximize the welfare of their
neighborhoods, than to enforce the fairness of payoff distribution.
The network externality in our paper can be interpreted as a public good shared by neighbors.
Most experimental research on public goods employs a linear setting for the benefit and cost of
providing the good ((Rege & Telle, 2004), (Masclet & Villeval, 2008), (Fischbacher & Gächter,
2010), (Weimann, Brosig-Koch, Hennig-Schmidt, Keser, & Stahr, 2012) – see also the reviews by
(Chaudhuri, 2011) and (Ledyard, 1995)); however, we adopt a nonlinear setup that features strictly
positive contribution as the player’s dominant strategy. Much as in (Keser, 1996), the presence of
an interior optimum enables us to test the deviation from the standard prediction towards both
directions. More importantly, the nonlinear setting enables us to estimate the behavioral parameters,
because those parameters enter the equilibrium prediction. 5 In our study, we find that subjects
contribute more when having more neighbors, which (at the local network level) confirms some
existing knowledge that contributions to the public good increase with group size ((Zhang & Zhu,
2011), (Isaac, Walker, & Williams, 1994), (Isaac & Walker, 1988); see also (Ledyard, 1995)) under
various conditions. 6
5 In the linear setting, some behavioral parameters only show up in the conditions that determine which
equilibrium takes place, but do not enter the equilibrium prediction, thus creating difficulty for the estimation.
6 In their natural experiment with Chinese Wikipedia, (Zhang & Zhu, 2011) suggest that, in the presence of
social effects, contributions to the public good rise in group size. In our experiment, the social effect can be
induced by the social network setting. (Isaac et al., 1994) and (Isaac & Walker, 1988) find that the contribution

The rest of our paper is organized as follows. Section 2 introduces the models of social
preferences in network games. In Section 3, we present the experimental design and protocols.
Section 4 records the experimental results, for which we conduct both aggregate- and individual-
level analyses. Section 5 concludes.
2. Model
2.1. Base model

The network consists of a set of players and the connections between them. Player 𝑖 and 𝑗 are
[not] connected if 𝑔𝑖𝑗 = 1 [0]. We consider undirected links, i.e. 𝑔𝑖𝑗 = 𝑔𝑗𝑖 , and normalize 𝑔𝑖𝑖 = 0.
Connected players are neighbors. The set of player 𝑖’s neighbors constitutes her neighborhood. We
use 𝑑𝑖 ≔ Σ𝑗 𝑔𝑖𝑗 to denote the number of neighbors player 𝑖 has, or the degree of player 𝑖.
Each player 𝑖 makes a (nonnegative) contribution, 𝑥𝑖 . Player i’s payoff, 𝜋𝑖 (𝒙), is determined
by her own contribution 𝑥𝑖 and the contributions of others, 𝒙−𝑖 ; and 𝒙 ≔ (𝑥𝑖 ; 𝒙−𝑖 ) represents the
action profile for all players.
1
𝜋𝑖 (𝒙) = 𝛿(𝑥𝑖 + ∑𝑗≠𝑖 𝑔𝑖𝑗 𝑥𝑗 ) − 2 𝑥𝑖2 . (1)
This payoff setting reflects local externality: A player’s payoff is affected not only by her own
action but also by the actions of those connected to her in the network. The payoff function also
resembles a public goods setting – For each individual player, everyone in her neighborhood
(including herself) benefits indiscriminately from her contribution, while she alone bears the cost
of contribution. Moreover, the setting features nonlinearity and an interior dominant strategy
equilibrium (in a similar spirit to, e.g. (Keser, 1996)). If every player maximizes her payoff as in
(1), there is a dominant strategy to contribute 𝛿 regardless of the player’s network position. This
yields the first theoretical conjecture on the equilibrium play.
REMARK R (Rational equilibrium). The players contribute 𝛿 units regardless of their network
positions.
The presence of dominant strategy in our experiment rules out the possibility of risk attitudes
to affect behavior (because there is no risk in decision making) and largely reduces the cognitive
burden associated with maximizing one’s own profit, so that the remaining bias in decision making
can be attributed to the consideration of others’ profits, i.e. the social preference. We develop two
increases with group size in relatively small groups. In our experiment, the number of neighbors that one has
(1-3) falls in the range of small group sizes studied in their works.

competing models that embed social preferences in network games. Section 2.2 examines a model
of welfare preference, and Section 2.3 studies a model of inequality aversion. Both models assume
that a player’s utility increases with her own payoff, while the models differ by the treatment of
other’s payoffs in one’s utility function.
2.2. The Model of Welfare

In the welfare model, an individual’s utility amounts to a weighted sum of her own payoff and
those of her neighbors. This model is based on (Charness & Rabin, 2002), but is developed here
into a network context. Formally, we have
Π𝑖 (𝒙) = (1 − ∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 )𝜋𝑖 (𝒙) + ∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 𝜋𝑗 (𝒙), (2)
where 𝜋𝑖 (𝒙) is player 𝑖’s pecuniary payoff defined in (1), and the coefficient 𝜆𝑖𝑗 captures the
relative importance of player 𝑗’s payoff in 𝑖’s objective. The term 1 − ∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 is the weight that
player 𝑖 reserves for her own monetary payoff, which we assume is nonnegative.7 If the total weight
assigned to others’ payoffs, ∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 , is equal to 1, player 𝑖 is purely altruistic, or a disinterested
individual who seeks to maximize the surplus of all other players. Yet if ∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 = 0, player 𝑖
becomes homo economicus as assumed in standard game theory. When the network is complete
( 𝑔𝑖𝑗 ≡ 1), our welfare model becomes a multi-person variant of the model described in the
appendix of (Charness & Rabin, 2002). 8 We can also rewrite the welfare utility function as
Π𝑖 (𝒙) = (1 − ∑𝑗 𝐿𝑖𝑗 )𝜋𝑖 (𝒙) + ∑𝑗 𝐿𝑖𝑗 𝜋𝑗 (𝒙), where 𝐿𝑖𝑗 ≔ 𝜆𝑖𝑗 𝑔𝑖𝑗 . This expression can be interpreted
as stating that the individual assigns different weights to different persons, where a nonzero weight
may exist for a person not connected to the focal individual. Most of our results for the welfare
model can be easily extended for this more general specification; however, here we write 𝜆𝑖𝑗 𝑔𝑖𝑗 in
order to separate the effect of network structure from that of reciprocity.
THEOREM W (Welfare equilibrium). The welfare equilibrium profile 𝒙∗ on network 𝐺 is such that,
𝛿
for each player 𝑖, 𝑥𝑖∗ = 1−∑ . If also 𝜆𝑖𝑗 ≡ 𝜆𝑖 for all 𝑗, then
𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗
7 Similar in spirit to the welfare preference in our paper, (Neilson & Wichmann, 2014) develop a model on the
homophily among network neighbors in their valuations of an exogenous public good. Unlike (Neilson &
Wichmann, 2014), we treat the public good as endogenous. Our paper differs from (Neilson & Wichmann,
2014) also in that (i) we develop an additional model of inequality aversion, and (ii) the theoretical predictions
of our models are contrasted and tested by laboratory experiment.
8 We simplify certain aspects of CR model (say, by removing the weight on the worst-off payoff) and also
normalize the weights in order to put forth the central scheme of weighted welfare maximization, and embed
it into the network structure.

𝛿
𝑥𝑖∗ = 1−𝜆 𝑑 (3)
𝑖 𝑖
All the proofs are provided in Appendix C. Under the welfare preference, a player cares about
the collective wealth within her neighborhood. Hence Theorem W states that a player’s contribution
increases with ∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 , or her connectivity weighted by the strength of her welfare concern. If
one weights neighbors’ payoffs indiscriminately, then her equilibrium contribution level is
increasing in the number of her neighbors (𝑑𝑖 ). That is, a welfarist will raise his contribution when
it benefits more people. As suggested in Theorem W, the equilibrium play under welfare preference
exhibits the following pattern.
REMARK W (Welfare equilibrium). Players contribute more than 𝛿 independent of their network
positions. Moreover, players with more neighbors make higher contribution.
2.3. The Model of Inequality aversion

In the seminal paper of (Fehr & Schmidt, 1999), a player suffers disutility if her payoff is either
less than or greater than the payoff of any of her peers. We shall develop this model into a network
context. To be specific, player 𝑖 maximizes her utility as follows:
+ +
Π𝑖 (𝒙) = 𝜋𝑖 (𝒙) − ∑𝑗 𝛼𝑖𝑗 𝑔𝑖𝑗 (𝜋𝑗 (𝒙) − 𝜋𝑖 (𝒙)) − ∑𝑗 𝛽𝑖𝑗 𝑔𝑖𝑗 (𝜋𝑖 (𝒙) − 𝜋𝑗 (𝒙)) , (4)
where 𝜋𝑖 (𝒙) is one’s (pecuniary) payoff defined as in equation (1), (𝑦)+ ≔ max{𝑦, 0}, and the
coefficients 𝛼𝑖𝑗 [𝛽𝑖𝑗 ] represent respectively the marginal reduction of player 𝑖’s utility for each unit
by which her monetary payoff is lower [higher] than that of her neighbor 𝑗. We assume that
∑𝑗 𝛽𝑖𝑗 𝑔𝑖𝑗 < 1 ∀𝑖.9 In our model, players are concerned about the fairness of payoff distributions
within their social neighborhoods, but not about the fairness over the entire society. This could be
the case where individuals either (i) do not observe the payoffs of those who are not their friends
or colleagues, or (ii) use only their friends or colleagues as their reference groups. 10 In our
terminology, (Fehr & Schmidt, 1999) assumes a complete network with everyone connected to
everyone else. Our model generalizes (Fehr & Schmidt, 1999) by allowing an agent to compare his
9 This assumption is compatible with existing evidence that many subjects are far less averse to advantageous
inequality than to disadvantageous inequality. See (Loewenstein, Thompson, & Bazerman, 1989), (Ferrer-i-
Carbonell, 2005), (Ho & Su, 2009), (Immorlica et al., 2017) and the references therein.
10 The existence of localized social comparison has garnered some empirical support, e.g. (Luttmer, 2005),
(Neumark & Postlewaite, 1998).

or her payoff with a specific subset of the population; and it is the network structure that determines
“who compares the profit with whom”.
THEOREM IA (equilibrium of Inequality Aversion). There exists a pure strategy equilibrium in

the game with inequality aversion, with any network structure.
The existence of pure strategy equilibrium follows from the fact that the utility function is
everywhere continuous and piecewise concave in one’s own action (see Proposition A-1 in
Appendix A). Next, we will explore some regularities of the IA equilibrium, which will be useful
for subsequent empirical analysis.
REMARK IA (equilibrium of Inequality Aversion). Players contribute more [less] than the rational
level if they earn more [less] than all of their neighbors.
Remark IA is a direct consequence of the player’s best response (which is specified in

Proposition A-1) and we omit its proof. To understand Remark IA, one should observe that: In
addition to increasing her financial payoff, a fairness-minded player tends to reduce the profit gap
that exists between neighbors and herself. That implies, by Lemma A-1 (in Appendix A), that the
focal player make less [more] contribution than the profit-maximizing amount when her payoff is
lower [higher] than her neighbor’s.
3. Experiment
3.1. Experimental Design

In this section, we design a simple experiment to test the competing theories outlined in Section
2. Our experiment manipulates both the network structure and the economic return associated with
the game. Each factor takes on two levels in a fully crossed 2×2 factorial design, which yields a
total of four treatments as recorded in Table 1 below.
Table 1. Summary of experimental design
Network Structure
factorial design
star circle
Economic low, 𝛿 = 10 LS LC
Return high, 𝛿 = 30 HS HC
Note: between subjects design

Figure 1. Experimental network structures

Our experiment employs the two network structures depicted in Figure 1: star and circle.
Generally speaking, by a star we refer to a network with a single node at the center (called the core)
and multiple nodes that are connected to the core but not to each other (the periphery). Let the star’s
core node be denoted by 𝑐, and denote by 1,2 … 𝑁𝑝 the 𝑁𝑝 nodes at the periphery. The circle is a
𝑁-vertex network in which each node is connected only to the two adjacent nodes. For the graphs
illustrated in Figure 1, 𝑁𝑝 = 3, 𝑁 = 4. We choose these networks for their simplicity and because
they serve as miniatures of real-world social and organizational systems. The star network
represents a monarchy, with the core assuming the most power or prestige; the circle is like a
democratic society, with players distributed at egalitarian positions. In all treatments, subjects are
connected according to the network structures shown in Figure 1 (depending on their treatments).
3.2. Experimental protocol

The experiment consists of 20 rounds. In each round subjects play the game described in
Section 2.1. In the star networks, a subject is located – throughout the experiment – either at the
core or at the periphery.11 With the design of repeated play and fixed roles (either core or periphery
in star networks), we are able to obtain more experienced subject behavior.12 Meanwhile, in order
to maintain the one-shot nature of the game, we rematch the subjects every round according to the
network structure. Specifically, we divide each treatment in five cohorts, each of which consists of
three [two] star [circle] networks in HS and LS [HC and LC] treatments; and we restrict the
rematching within each cohort. Moreover, the rematching preserves the subject’s role as core or
11 In other words, no subject can be at the core in one round, and at the periphery in another round. If a subject
is assigned at the core [the periphery] in one round, s/he will remain at the core [the periphery] in all rounds
of the experiment.
12 This design is adopted because alternating over different roles (core or periphery) in the experiment will
likely disrupt the subject’s learning.

periphery in the star treatments. In this way we guarantee that the subjects’ roles are fixed, whereas
the partnerships constantly change and so every round resembles a one-shot game. The structuring
of the experiment and the matching protocol within each cohort are respectively illustrated in
Figures D-1 and D-2 in Appendix D.
Subjects are provided with pictures of the networks (Figure 1) in the instruction and also
through the computer interface. After each round subjects are informed of their own payoffs as well
as those of their neighbors, while the anonymity is maintained for all players.13 Sample instruction
is reproduced in Appendix D.
We collected data from 200 subjects from February 2017 through May 2018. Subjects are
mainly registered students at a major public university in China, who were recruited from an online
information system. All subject participation is monetarily incentivized, and the average earning
per subject is 48.32 Chinese Yuan. The software we use is programmed in z-Tree ((Fischbacher,
2007)). Sample software screenshots are provided in Appendix D.
4. Results
4.1. Aggregate patterns
OBSERVATION 1. In all treatments, players on average contribute more than predicted by the
standard theory.
Figures 2 and 3 plot the average subject contribution in star and circle treatments, respectively.
In both figures (as well as other figures in this section and Appendix B), the vertical bar represents
the 95% confidence interval for the overall mean of the plotted variable; and the dashed line (when
imposed) denotes the rational prediction. As shown in Figures 2 and 3, the actual play deviates
significantly from the rationality benchmark: The average contribution falls below 𝛿 in none of the
periods in star treatments. In the circle treatments, the average contribution by period exceeds the
rational amount with just some minor exceptions towards the end of experiment in treatment HC.
The summary statistics of subject contribution is presented in Table 2. For Observation 1, one
sample t-test clustered by subjects shows a p-value of 0.001 [0.000] for core [peripheral] players in
13In order to avoid negative payoffs and associated payment issues, we set an upper bound on the
contribution that can be made by a subject in the experiment. The bound is high enough so that the theoretical
equilibria continue to hold as they fall within the bound. That being said, our models can also be formally
extended to accommodate the upper bound. Such an extension could be done in a manner similar to our
handling of the nonnegativity constraint on the contribution (see, e.g. the proof of Proposition A-1 in
Appendix C).

HS, and 0.000 [0.000] for LS. The same test produces p=0.019 for subjects in HC and 0.000 for
LC. 14 The observed pattern of behavior is consistent with Remark W, which is derived under the
welfare preference. We also find that subject contribution slightly declines throughout the game in
most treatments. This trend is in line with the common laboratory finding that contribution to the
public good tends to fall over time (see, e.g. (Fischbacher & Gächter, 2010)).
Figure 2. Average contributions in star treatments
Figure 3. Average contributions in circle treatments
Table 2. Summary of contributions

HS LS HC LC
core periphery core periphery
41.85 33.62 16.29 12.85 32.63 12.63
[3.12] [0.96] [1.25] [0.45] [1.23] [0.42]
mean [standard error (clustered by subjects)]
14 The p-values are one-sided, with the patterns in Observation 1 formulated as the alternative hypotheses.

OBSERVATION 2. In the star treatments, core nodes on average earn more, and contribute more,
than do peripheral nodes.
Figure 4. payoffs in star treatments

Table 3. payoffs in star treatments
HS LS
core periphery core periphery
3290.08 1634.08 386.73 194.58
[73.80] [36.51] [9.92] [5.37]
In the star networks, we find that core subjects make a higher profit than peripheral ones (Table
3). As shown in Figure 4, the profit of the core dominates that of the periphery in treatments LS and
HS (p-value = 0.000 for comparisons in both treatments, from two-sample t-test clustered by
subjects). If peripheral subjects were to pursue fairness, they should contribute less than 𝛿 (by
Remark IA). However, we found their contribution to be higher than the rational level (Observation
1), which runs counter to inequity aversion. Moreover, as Figure 2 suggests, the core players
contribute more than do peripheral ones (p-value = 0.006 and 0.005 for the comparison in HS and
LS respectively, from two-sample t-test clustered by subjects);15 and that supports Remark W.
OBSERVATION 3. In circle networks, subjects who earn less than both of their neighbors
contribute on average more than 𝛿 in the subsequent period.
In both treatments HC and LC, we find the average contribution higher than 𝛿 for the subjects
who earned less than their two neighbors in the previous round (plotted in Figure 5 as lag profit <
neighbors’; also see Table 4 for summary statistics).16 For this finding, one sample t-test clustered
15 For the tests for Observation 2: All the p-values are one-sided, with the patterns in Observation 2 formulated
as the alternative hypotheses.
16 In the circle treatments, our analysis accounts for the potential lag effect in subjects’ decision making, as
they cannot see and respond to their neighbors’ profits until the next decision round. As for the analysis of

by subjects shows a p-value of 0.005 [0.000] in HC [LC]. 17 Note that in the case of earning less
than both neighbors, the model of inequality aversion indicates a contribution level lower than 𝛿
(see Remark IA), which is clearly rejected by the experimental observation. Therefore, the
predictions from inequality aversion seem to be inaccurate for the circle networks.
Figure 5. Average contribution in the circle treatments

conditional on the focal player earning less than both
neighbors in the previous round
Table 4. Average contribution in the circle treatments

conditional on the focal player earning less than both neighbors in the previous round
HC LC
35.76 13.40
[2.14] [0.44]
mean [standard error (clustered by
subjects)]
In sum, these experimental results suggest that the theory based on full rationality is largely
inconsistent with the actual behavior in network games. In general, subjects contribute more than
what would maximize their own profit. When they are at central position in the star network,
subjects earn more, and make more contribution, than those at the outer positions. Furthermore,
subjects in the circle networks contribute more than the rational amount even if they earned less
than both of their neighbors. These behavioral patterns indicate that subjects tend to exhibit more
preference for welfare than aversion to inequality. In the next section, we will see that the same
conclusion holds at the individual level.
4.2. Individual-level analysis
the star treatments, considering the lag effect would make little difference, because the average profit of the
core is uniformly higher than that of the periphery in every period.
17 The p-values are one-sided, with the patterns in Observation 3 formulated as the alternative hypotheses.

Having established that the welfare preference dominates both rationality and inequality
aversion at the aggregate level, we now commence an individual-level investigation and estimation
of behavioral parameters. We fit the behavioral parameters 𝛼𝑖 , 𝛽𝑖 , 𝜆𝑖 for each individual 𝑖.18 As such,
the estimation is based on the welfare equilibrium characterized in (3), as well as the equilibria of
inequity aversion laid out in explicit forms in Corollaries IA-S and IA-C (both in Appendix A). In
order for the maximum likelihood estimation (MLE), we attach a zero-mean and normally
distributed noise to the theoretically predicted action of each player 𝑖, and also estimate its variance
(𝜎𝑖 ).
Table 5 records the log-likelihood (LL) and Akaike information criterion (AIC) values of the
models in all treatments. In all treatments, the welfare model achieves higher likelihood than that
of inequality aversion, and does so with fewer parameters. As a result, the welfare model has
unambiguously lower AIC values, which favors it over inequity aversion in the model selection.
The welfare model is also superior to the rational model in terms of the AIC comparison. For
expositional convenience, we shall respectively abbreviate the welfare, inequality aversion, and
rational models with W, IA, and R.
Table 5. Model Comparison*
Treatment HS LS HC LC
-3123.12 -3039.35 -2022.46 -1811.08
LL [-3430.33; - [-3263.18; - [-2092.80; - [-1955.92;-
3550.72] 3331.86] 2114.05] 1978.01]
6486.25 (120) 6318.70 (120) 4204.92 (80) 3782.15 (80)
AIC (df) 19 [7220.65 (180); [6886.36 (180); [4425.60 (120); [4151.83 (120);
7221.44 (60)] 6783.72 (60)] 4308.10 (40)] 4036.03 (40)]
* Model W [Model IA; Model R]
Why does the pursuit of welfare outweigh inequality aversion in subjects’ behavior in our
experiment? We argue that the social connections in our experiment may impart a sense of group
to the connected agents, so that they feel more affiliated when making decisions. This conjecture
is supported by the study on social identity, which shows the group saliency can lead individuals
to pursue the group’s goal (Akerlof & Kranton, 2000, 2005), (Kranton, 2016). In particular, (Chen
& Li, 2009) demonstrate that subjects exhibit significantly less envy and more charity with partners
18 In this way, we assume an individual 𝑖 treats her neighbors indifferently in assessing her utility, i.e. 𝛼𝑖𝑗 ≡
𝛼𝑖 , 𝛽𝑖𝑗 ≡ 𝛽𝑖 in (4) and 𝜆𝑖𝑗 ≡ 𝜆𝑖 in (2) for all 𝑗 in the fairness and the welfare model.
19 Recall that each treatment includes 5 cohorts, each star [circle] cohort contains 3 [2] networks, and each
network comprises 4 subjects; hence, there are 60 [40] subjects in each star [circle] treatment. For each
individual, the IA [welfare] model has 3[2] parameters in the star treatment and 3[2] parameters in the circle
treatment, while the baseline model involves only the 𝜎𝑖 -term. Altogether, these give the degrees of freedom
(df) specified in Table 5.

from the same group, and that the in-group subject behavior can be well interpreted through the
(Charness & Rabin, 2002) model. This echoes the prevalence of welfare preference observed in our
setting (which resembles a networked version of Charness & Rabin 2002 model). Besides that, it
has also been shown in simple distribution experiments that the efficiency preference dominates
inequality aversion (see (Dirk Engelmann & Strobel, 2004), (D. Engelmann & Strobel, 2006), and
references therein); and we find, in our experiment, that the same pattern of model selection also
prevails in games in networks.
Table 6. MLE Results
Model IA Model W
treatment
𝛼𝑐 𝛼𝑝 𝛽𝑐 𝛽𝑝 𝜎𝑖𝐼𝐴 𝜆𝑐 𝜆𝑝 𝜎𝑖𝑊
0.268 0.027 0.076 0.285 9.52 0.080 0.109 7.56
HS
(0.260) (0.105) (0.060) (0.235) (7.52) (0.061) (0.119) (6.22)
0.102 0.010 0.091 0.222 5.62 0.110 0.189 4.34

LS
(0.206) (0.020) (0.068) (0.208) (3.65) (0.068) (0.160) (2.45)
𝛼𝑖 𝛽𝑖 𝜎𝑖𝐼𝐴 𝜆𝑖 𝜎𝑖𝑊
0.020 0.012 8.16 0.043 6.85
HC
(0.058) (0.033) (8.57) (0.065) (6.16)
0.000 0.049 4.82 0.093 3.84

LC
(0.001) (0.065) (2.91) (0.073) (2.25)
mean (standard deviation)
all parameters significant at 0.05 level by signrank test
Table 6 reports detailed parameter estimates of the behavioral models, where the notations with
subscript 𝑐 and 𝑝 respectively denote the parameter estimates for the core and peripheral subjects
in the star networks; and 𝜎𝑖𝐼𝐴 [𝜎𝑖𝑊 ] denotes the individual 𝜎-estimates under the inequity aversion
[welfare] model. As an exemplary interpretation of results from the welfare model, note that 𝜆𝑐
averages 0.110 in treatment LS. That means, for an average subject at the core, the profit of a single
neighbor of hers constitutes 11.0% of the focal subject’s utility. Since the subject has three such
neighbors, she ends up with 33.0% of interest attributed to neighbor profits, and 67.0% to her own.
Notice that the estimated 𝜆 for core, periphery, and circle subjects are all lower in treatments with
𝛿 = 30 than in those with 𝛿 = 10.20 That suggests if the economic stake is higher, that individual
cares more about herself.
20For this statement, one-sided Wilcoxon ranksum tests based on individual parameter estimates yield p=0.007
for 𝜆𝑝 and p=0.000 for 𝜆𝑖 (circle treatments). For 𝜆𝑐 , the p-value of the test is 0.086 (weakly significant).

Some remarks are in order concerning the estimation of the inequality aversion model. Since
the star network naturally leads to asymmetric payoffs, the players may not feel much unfair, given
their network positions, about the core earning higher than periphery. This conjecture is confirmed
by our estimation results that 𝛼𝑐 > 𝛼𝑝 and 𝛽𝑐 < 𝛽𝑝 in the star networks, 21 which reflect the idea
that one’s perception of fairness is influenced by her location in the network in the following sense.
In the context of positive externality, a player at the core position would perceive herself as
deserving more than one at the periphery. Likewise, a peripheral player also thinks that it is natural
that she earns less than the core player. It follows that, a core subject would be more upset if she
ends up receiving less payoff than the periphery, than is a peripheral subject if the opposite happens
(𝛼𝑐 > 𝛼𝑝 ). For the same reason, a player at the periphery would feel sorrier for a core earning less
than her, than would a core player when earning more than the periphery (𝛽𝑐 < 𝛽𝑝 ). Also, observe
that 𝛼𝑝 < 𝛽𝑝 [𝛼𝑖 < 𝛽𝑖 ] in treatments HS and LS [LC] (p-values=0.000 for all comparisons involved,
by one-sided Wilcoxon signed-rank paired-sample test based on individual estimates22). Although
the fact 𝛼 < 𝛽 is inconsistent with the common understanding that people are more averse to
disadvantageous inequality than to advantageous inequality (see e.g. (Ho & Su, 2009), (Immorlica
et al., 2017)), this inconsistency in our case reflects that the welfare model explains the data better
than that of inequality aversion. To see this, note that welfare preference and inequality aversion
differ in their treatment of neighbors’ payoffs that are higher than one’s own. In such cases, a
fairness-minded player wants to reduce her neighbor’s payoff, whereas a player endowed with
welfare preference wants to increase her neighbor’s payoff. Hence, a forced estimation of the
inequity aversion model (where 𝛼 is constrained to be nonnegative), when the underlying “true”
model is that of welfare preference, should yield values of 𝛼 that are close to zero (because the
“true” 𝛼-values should be less than zero). That leads to 𝛼 < 𝛽.
Our results in this section can be summarized as follows. We show that the welfare preference
outperforms both inequality aversion and rationality in driving the individual behavior in network
games. The degree of welfare concern (𝜆) decreases with the economic return. We also find that
21 For both comparisons (𝛼𝑐 > 𝛼𝑝 and 𝛽𝑐 < 𝛽𝑝 ), p-values=0.01 by one-sided Wilcoxon ranksum test based on
individual estimates in treatment HS. In LS, the same test shows weak significance for the comparison 𝛽𝑐 <
𝛽𝑝 (p=0.066), and lack of significance for the test 𝛼𝑐 > 𝛼𝑝 (p-value > 0.20). Thus, the statement 𝛼𝑐 > 𝛼𝑝 in LS
may only hold on the average level (that is, 0.102>0.010 from Table 6).
22 Recall that the subjects in the star networks do not alternate their roles as core or periphery. Therefore, we
employ ranksum test for comparisons across roles (e.g. the test on 𝛼𝑐 > 𝛼𝑝 ), in which case the samples in
comparison come from different sets of individuals; and we apply signed-rank test to comparisons within
individuals (e.g. the test on 𝛼𝑝 < 𝛽𝑝 ), in which case the test accounts for the fact that the attributes being
compared stem from the same individual.

one’s perception of fairness is influenced by her network position, which explains the observed
patterns of our estimated parameters, 𝛼 and 𝛽.
5. Conclusion and Discussion

We investigate social preferences in network games where each player engages with an
exogenous subset of the player population. The network is configured as a set of relationships that
establish “whose action affects whose payoff”. We develop theoretical models that incorporate
inequality aversion (Fehr and Schmidt 1999) and welfare preference (Charness and Rabin 2002)
into the context of network games, and test our theories with experimental data. Subjects are
observed to make higher contributions than the rational amount. We also find that subjects at the
core positions contribute more than those at the periphery. These behavioral regularities
collectively suggest welfare preference, rather than inequality aversion or rationality, as the driving
force in the game play. Our estimation of the behavioral parameters reveals how one’s perceptions
of fairness and welfare are influenced by the network topology.
In their seminal paper, Fehr and Schmidt (1999, p. 851) remark that the effect of network
topology on inequality aversion is a vital subject for future research: “Another set of questions
concerns the choice of the reference group. … There may well be interactive structures in which
some agents have a salient position that makes them natural reference agents.” This idea is
materialized in our paper. In a similar fashion, we also extend the model of welfare preference
((Charness & Rabin, 2002)) into the network environment. This work offers a starting point for
testing social preferences on more realistic social or economic networks, and developing more
general models on social preferences in network games.
Our current experiments are not conducted on real social networks. Instead, we arbitrarily
assign individuals to our experimental networks. The tradeoff we face in this aspect (control vs.
realism) is typical in the laboratory experiments. Nonetheless, it is reasonable to suppose that using
real social networks would actually enhance the welfare preference, because true friends
presumably care more about each other’s profit than do random partners. Note also that our present
experimental setup does not involve communication between neighbors. Yet because
communication enhances cooperation in public goods provision (see (Chaudhuri, 2011) and
(Ledyard, 1995)), neighbors shall be more aware of the group’s goal when the communication is
in place. Consequently, the welfare preference may further firm up with communication. Therefore,
our conclusion that subject behavior is mainly motivated by the welfare preference will be likely

to carry over to real-world social networks and be robust to the presence of neighbor
communication.
A promising direction for future research would concern the learning and dynamics in the
behavior of network games. For example, we observe that there is usually a declining trend in
player contributions over time. In the context of public goods provision, (Fischbacher & Gächter,
2010) has explained this downward contribution as a consequence of imperfect conditional
cooperation – that is, the players only partly match the contributions of others. Whether a similar
mechanism is responsible for the intertemporal pattern found in our setting, and how such
mechanics interact with network architecture, are subjects that merit further exploration.
Our present experiment features a dominant strategy in the base game, as a means to control
for nuisance factors (e.g. risk attitudes, cognitive complexity) other than social preferences.
Nevertheless, a future study beyond this design could incorporate complementarity or
substitutability among neighbors’ contributions. Whether adding such “synergy” in neighbor
actions could alter the preference of players remains an interesting question.

Due to the page limit, Appendix can be separated from the manuscript and posted online. The
notations in the Appendix inherit from those the main text, unless otherwise clarified.
Appendix A. The Equilibrium of Inequality Aversion

A.1. Strategy and best response
Given the individual payoff function in the main text as (1), a marginal increase of 𝑥𝑖 will cause
the payoff of every player 𝑖’s neighbor to increase by 𝛿 . Thus one’s own action 𝑥𝑖 will not
unilaterally change the order of her neighbor’s payoff. To proceed, denote by 𝜋(1)𝑖 (𝒙),
𝜋(2)𝑖 (𝒙) … 𝜋(𝑑𝑖)𝑖 (𝒙) the 1st, 2nd, …𝑑𝑖 th least pecuniary payoff of player 𝑖’s neighbor, given the
action profile 𝒙. Given 𝒙−𝑖 , let 𝑋(𝑘)𝑖 (𝒙−𝑖 ) represents the threshold contribution level for player 𝑖,
with which 𝑖’s payoff equals 𝜋(𝑘)𝑖 (𝒙), that is, 𝜋𝑖 (𝑋(𝑘)𝑖 (𝒙−𝑖 ); 𝒙−𝑖 ) = 𝜋(𝑘)𝑖 (𝒙). Then the following
lemma holds:
LEMMA A-1. 𝑋(𝑑𝑖)𝑖 (𝒙−𝑖 ) < 𝑋(𝑑𝑖−1)𝑖 (𝒙−𝑖 ) … < 𝑋(2)𝑖 (𝒙−𝑖 ) < 𝑋(1)𝑖 (𝒙−𝑖 ).
𝜕𝜋𝑖 (𝒙)
The proof of Lemma A-1 is straightforward: For player 𝑖 , 𝜕𝑥𝑖
= 𝛿 − 𝑥𝑖 , while for 𝑖 ’s
𝜕𝜋𝑗 (𝒙) 𝜕𝜋𝑖 (𝒙) 𝜕𝜋𝑗 (𝒙)
neighbor 𝑗, 𝜕𝑥𝑖
= 𝛿. 𝜕𝑥𝑖
< 𝜕𝑥𝑖
. Thus when 𝑥𝑖 increases, player 𝑖 ’s neighbors’ payoffs
increase faster than player 𝑖’s payoff (which may even decrease). Then Lemma A-1 follows.
Without loss of generality, normalize 𝑋(0)𝑖 (𝒙−𝑖 ) = +∞ and 𝑋(𝑑𝑖+1)𝑖 (𝒙−𝑖 ) = −∞, ∀𝑖. We refer to
the interval (𝑋(𝑘)𝑖 (𝒙−𝑖 ), 𝑋(𝑘−1)𝑖 (𝒙−𝑖 )) as range-𝑘. Let 𝑑𝑖 ∶= max{𝑡|𝑋(𝑡)𝑖 (𝒙−𝑖 ) ≥ 0, 𝑡 ≤ 𝑑𝑖 }, that
is, 𝑑𝑖 is the highest rank of 𝑖’s payoff in her neighborhood that player 𝑖 can ever attain by reducing
her contribution, given 𝒙−𝑖 . By definition, this rank must be upper bounded by 𝑖’s number of
neighbors, i.e. 𝑑𝑖 ≤ 𝑑𝑖 . All that said, we are ready to present a foundational result for the model of
inequality aversion.
P ROPOSITION A-1. a) Player 𝑖’s fairness utility 𝛱𝑖 (𝑥𝑖 ; 𝒙−𝑖 ) is piecewise concave with respect to
her own contribution, 𝑥𝑖 . b) The game admits a unique best response function for player 𝑖, 𝑥𝑖∗ (𝒙−𝑖 ),
to neighbor action 𝒙−𝑖 . Specifically, there exists 𝑟 such that

𝑥𝑖∗ (𝒙−𝑖 )
𝛿 𝛿
(𝑑𝑖 )𝑖 (𝑟−1)
, if (𝑑𝑖 )𝑖 (𝑟−1)
∈ (𝑋(𝑟)𝑖 (𝒙−𝑖 ), 𝑋(𝑟−1)𝑖 (𝒙−𝑖 ))
1+ ∑𝑗=(𝑟) 𝛼𝑖𝑗 − ∑𝑗=(1) 𝑖 𝛽𝑖𝑗 1+ ∑𝑗=(𝑟) 𝛼𝑖𝑗 − ∑𝑗=(1) 𝑖 𝛽𝑖𝑗
𝑖 𝑖 𝑖 𝑖
=
𝛿 𝛿
𝑋(𝑟)𝑖 (𝒙−𝑖 ), if 𝑋(𝑟)𝑖 (𝒙−𝑖 ) ∈ ( (𝑑𝑖 )𝑖 (𝑟−1)
, (𝑑𝑖 )𝑖 (𝑟)
)
{ 1+ ∑𝑗=(𝑟) 𝛼𝑖𝑗 − ∑𝑗=(1) 𝑖 𝛽𝑖𝑗 1+ ∑𝑗=(𝑟+1) 𝛼𝑖𝑗 𝑖
− ∑𝑗=(1) 𝛽𝑖𝑗
𝑖 𝑖 𝑖 𝑖
One can show that Π𝑖 (𝑥𝑖 ; 𝒙−𝑖 ) is concave with respect to 𝑥𝑖 within any range- 𝑘 , and is
continuous at any point 𝑋(𝑘)𝑖 (𝒙−𝑖 ). Hence, the best response of player 𝑖 to her neighbor action 𝒙−𝑖
is obtained at either an interior point (which falls in the range that implements the corresponding
payoff order), or a boundary point (which equalizes the player’s payoff with that of a neighbor of
hers). It is important to note that Proposition A-1 holds for arbitrary network topology. Proposition
A-1 lays the foundation for the derivation of equilibria under inequality aversion in the star network
(Corollary IA-S), the circle network (Corollary IA-C), and the complete network (Corollary IA-
Com). The piecewise concavity and continuity of utility function, as revealed in Proposition A-1
(a), is rudimentary to the existence of pure strategy equilibrium under inequity aversion (Theorem
IA).
A.2. Equilibrium on the experimental networks

Theorem IA establishes the existence of pure strategy equilibrium with inequality aversion.
However for the experimental networks we used, we have to obtain the explicit form of equilibria
in order for the parameter estimation. For that purpose, more notations are required. For the star
network: Given an action profile 𝒙, order the peripheral nodes 1,2… 𝑁𝑝 such that their payoffs
increase with their index; that is, 𝜋1 (𝒙) < 𝜋2 (𝒙) < ⋯ < 𝜋𝑁𝑝 (𝒙) . We consider all possible
scenarios as follows. 1) Type-1 payoff separating (PS1), where the core’s payoff is higher than all
peripheral nodes’ payoffs: 𝜋1 (𝒙) < 𝜋2 (𝒙) < ⋯ < 𝜋𝑁𝑝 (𝒙) < 𝜋𝑐 (𝒙). 2) Type-2 payoff separating
(PS2), where the core’s payoff is lower than all peripheral nodes’ payoffs: 𝜋𝑐 (𝒙) < 𝜋1 (𝒙) <
𝜋2 (𝒙) < ⋯ < 𝜋𝑁𝑝 (𝒙). 3) Payoff embedding (PE), where the core’s payoff lies in the midst of
peripheral nodes’ payoffs: there exists 𝑟 such that 𝜋1 (𝒙) < ⋯ < 𝜋𝑟−1 (𝒙) < 𝜋𝑐 (𝒙) < 𝜋𝑟 (𝒙) <
⋯ < 𝜋𝑁𝑝 (𝒙). Denote by 𝑥𝑐∗ and 𝑥𝑝∗ the equilibrium action of core and periphery, respectively, and
T
denote the equilibrium profile by 𝒙∗ ≔ (𝑥𝑐∗ , 𝑥𝑝∗ | ) .
𝑝=1,2…𝑁𝑝

COROLLARY IA-S (equilibrium of Inequality Aversion in Star). There are three equilibria of
inequality aversion in a star.
𝛿 𝛿
Case PS1: 𝑥𝑝∗ = 1+𝛼 , for 𝑝 ∈ {1,2 … 𝑁𝑝 }, and 𝑥𝑐∗ = 1−𝛽 𝑁 if 𝜋1 (𝒙∗ ) < ⋯ < 𝜋𝑁𝑝 (𝒙∗ ) < 𝜋𝑐 (𝒙∗ ).
𝑝 𝑐 𝑝
𝛿 𝛿
Case PS2: 𝑥𝑝∗ = 1−𝛽𝑝
, for 𝑝 ∈ {1,2 … 𝑁𝑝 },and 𝑥𝑐∗ =
1+𝛼𝑐 𝑁𝑝
if 𝜋𝑐 (𝒙∗ ) < 𝜋1 (𝒙∗ ) < ⋯ < 𝜋𝑁𝑝 (𝒙∗ ).
𝛿 𝛿
Case PE: There exists 𝑟 ∈ (1, 𝑁𝑝 ],such that 𝑥𝑝∗ = 1+𝛼 , for all 𝑝 ∈ {1,2, … 𝑟 − 1}; 𝑥𝑝∗ = 1−𝛽 for all 𝑝 ∈
𝑝 𝑝
𝛿
{𝑟, 𝑟 + 1, … 𝑁𝑝 }; and 𝑥𝑐∗ = if 𝜋1 (𝒙∗ ) < ⋯ < 𝜋𝑟−1 (𝒙∗ ) < 𝜋𝑐 (𝒙∗ ) < 𝜋𝑟 (𝒙∗ ) < ⋯ <
1+𝛼𝑐 (𝑁𝑝 −𝑟+1)−𝛽𝑐 (𝑟−1)
𝜋𝑁𝑝 (𝒙∗ ).
The equilibria in Corollary IA-S (and in Corollaries IA-C and IA-Com to follow) can be worked
out by self reinforcement: Start with an order of payoffs imposed by a candidate profile 𝒙∗ . If the
best response (given in Proposition A-1) under this order of payoffs results in 𝒙∗ itself, then 𝒙∗
becomes an equilibrium. The formal proofs of Corollary IA-S (and of Corollaries IA-C and IA-
Com to follow) follow immediately from Proposition A-1 and so are omitted.
Figure A-1. The networks illustrated with notations

We next study the fairness game on circle networks. For the four-player circle used in the
experiment, we can divide the nodes into two groups – each of which contains nodes that share a
common neighborhood. Without loss of generality, the two groups are labeled b and w (respectively
colored black [b] and white [w] in Figure A-1). We use an upper [lower] bar to represent the node
with higher [lower] payoff in each group. Hence by definition, we have 𝜋𝑤̅ (𝒙) > 𝜋𝑤 (𝒙) and
𝜋𝑏̅ (𝒙) > 𝜋𝑏 (𝒙) for given 𝒙. Consider all possible scenarios: 1) payoff separating (PS), where
𝜋𝑤̅ (𝒙) > 𝜋𝑤 (𝒙) > 𝜋𝑏̅ (𝒙) > 𝜋𝑏 (𝒙) ; 2) payoff overlapping (PO), where 𝜋𝑤̅ (𝒙) > 𝜋𝑏̅ (𝒙) >
𝜋𝑤 (𝒙) > 𝜋𝑏 (𝒙); and 3) payoff embedding (PE), where 𝜋𝑤̅ (𝒙) > 𝜋𝑏̅ (𝒙) > 𝜋𝑏 (𝒙) > 𝜋𝑤 (𝒙).23
Note that payoff scenarios other than PS, PO, and PE can be generated by exchanging labels (i.e. 𝑏 vs. 𝑤,
23
upper bar vs. lower bar).

COROLLARY IA-C (equilibrium of Inequality Aversion in Circle). There are three equilibria of
inequality aversion in a four-player circle network.
𝛿 𝛿
Case PS. 𝑥𝑏∗ = for all 𝑏 ∈ {𝑏̅, 𝑏}, and 𝑥𝑤
∗
= for ̅, 𝑤} if 𝜋𝑤̅ (𝒙∗ ) > 𝜋𝑤 (𝒙∗ ) >
all 𝑤 ∈ {𝑤
1+2𝛼𝑏 1−2𝛽𝑤
𝜋𝑏̅ (𝒙∗ ) > 𝜋𝑏 (𝒙∗ ).

𝛿 𝛿 𝛿 𝛿
Case PO. 𝑥𝑏∗̅ = 1+𝛼 , 𝑥𝑏∗ = 1+2𝛼 . 𝑥𝑤
∗
̅ = 1−2𝛽
∗
, 𝑥𝑤 = 1+𝛼 if 𝜋𝑤̅ (𝒙∗ ) > 𝜋𝑏̅ (𝒙∗ ) >
̅ −𝛽𝑏
𝑏 ̅ 𝑏 ̅
𝑤 𝑤 −𝛽𝑤
𝜋𝑤 (𝒙∗ ) > 𝜋𝑏 (𝒙∗ ).

𝛿 𝛿 𝛿
Case PE. 𝑥𝑏∗ = 1+𝛼 for all 𝑏 ∈ {𝑏̅, 𝑏}, 𝑥𝑤
∗ ∗
̅ = 1−2𝛽 , 𝑥𝑤 = 1+2𝛼 if 𝜋𝑤̅ (𝒙∗ ) > 𝜋𝑏̅ (𝒙∗ ) >
𝑏 −𝛽𝑏 ̅
𝑤 𝑤
𝜋𝑏 (𝒙∗ ) > 𝜋𝑤 (𝒙∗ ).
One implication of Corollary IA-C is that, if a player’s payoff is higher [lower] than both her
neighbors in the circle network, then she contributes unambiguously more [less] than the rational
amount, driven by a sense of sympathy [envy]. This is consistent with Remark IA. When the
player’s payoff falls between those of her neighbors, whether she contributes more than or less than
the rational level will depend on the relative strength of her sympathy and envy. If, specifically, a
player’s feeling of envy due to earning less than one of her neighbors dominates her compassion
for the other neighbor who earns even less, then the focal player’s contribution should be pulled
below 𝛿.
Last, let us turn to the fairness equilibrium on the complete network. For player 𝑖, denote by
𝑟𝑖 (𝒙) ≡ 𝑟𝑖 the payoff rank of player 𝑖 under profile 𝒙, and by 𝜋(𝑟) (𝒙) the player payoff ranked at 𝑟
in the network for given 𝒙. The equilibrium is then characterized by the following corollary.
COROLLARY IA-COM (equilibrium of Inequality Aversion in Complete network). There exists

𝛿
an equilibrium 𝒙∗ , such that 𝑥𝑖∗ = 1+(𝑁−𝑟 )𝛼 −(𝑟 −1)𝛽 and 𝜋(1) (𝒙∗ ) < ⋯ < 𝜋(𝑟𝑖) (𝒙∗ ) <
𝑖 𝑖 𝑖 𝑖
𝜋(𝑟𝑖+1) (𝒙∗ ) < ⋯ < 𝜋(𝑁) (𝒙∗ ), for all 𝑖.
Corollary IA-Com works out in the same flavor as Corollaries IA-S and IA-C, except that
everyone falls in the same neighborhood in the complete network (so that one can introduce a
common payoff ranking over all players). As implied by Corollary IA-Com, the player with the
lowest [highest] earning in the complete network will contribute lower [higher] than 𝛿, which is
consistent with Remark IA. In estimating the IA model (Corollaries IA-S, IA-C, and IA-Com), we
use the actual profit observed in each period to determine the candidate equilibrium for that period.

For example in a star network, if in some period the payoff of the core is greater than those of all
periphery’s, then subjects are supposed to play equilibrium PS1 in that period (where the
𝛿
contribution of any peripheral player 𝑝 is estimated by 1+𝛼𝑝
and that of the core player 𝑐 by
𝛿
1−𝛽𝑐 𝑁𝑝
). 24
Appendix B. Comparison to Behavior on the Complete Network

The network effects observed in our main experiment in Section 4 are local, in the sense that
we contrast subject behaviors in the same network with different numbers of neighbors (e.g. core
vs. periphery). In this section we look into global network effects, by comparing the behavior across
networks, while controlling for one’s number of neighbors. Specifically, we conduct an experiment
of the same game on the complete network, which resembles the conventional environment for
game theory research (everyone connecting with everyone else in the network). For control purpose
we fix the network size to be same as that in the main experiment ( 𝑁 = 4 ), set 𝛿 = 10
(corresponding to low economic return), and denote this new treatment by LCom. Consistent with
the foregoing experimental protocol, treatment LCom consists of five cohorts, each of which entails
two 4-player complete networks. In total we recruited 40 subjects for treatment LCom (from the
same subject pool used for the main experiment). Each subject plays 20 rounds of the game
described in Section 2.1 with non-repetitive partners who are rotated within cohorts (so that every
round resembles a one-shot game). After each round, subjects are informed of the payoffs of their
own and those in the same network, while the anonymity is maintained for all players. Other
procedures parallel those applied to the main experiment in Section 3.
We are primarily interested in two questions in this section. The first one is, as robustness check
to our main results, whether the welfare preference precedes in this new setting of complete
interactions. Second and more importantly, what effect does global network cast on the behavior?
To provide an answer, we compare behavior in LCom and that of the core players in treatment LS.
By doing so, we control for one’s number of neighbors (3), while varying the outer network to
examine the behavior.
OBSERVATION B-1. The players in LCom contribute less than the core players in LS.
24Note that the prerequisites of Corollaries IA-S, IA-C, and IA-Com are stated in terms of estimated
parameters (e.g. 𝜋1 (𝒙∗ ) < ⋯ < 𝜋𝑁𝑝 (𝒙∗ ) < 𝜋𝑐 (𝒙∗ )); therefore, it is an approximate to qualify these prerequisites
using actual profit data. Such approximation becomes necessary given the rotation of partnership and the
individualized parameter estimation.

In our experiment, both the subjects in the complete network and the core players in the star
network have three neighbors. However, their behaviors display a remarkable difference (after
controlling for the economic return) – As shown in Figure B-1, the subjects contribute considerably
less in LCom than those do at the core position in LS (the latter denoted as LS core in the figure),25
and this difference tends to expand over the course of experiment. We view this as the effect of
reference structure. Although having the same degree, the core of a star and a member of a complete
network face drastically different networks outside their neighborhoods. The hierarchical
configuration of the star network exposes its core to a “social responsibility” to raise its
contribution, whereas such exposure does not take place in a complete network owing to the
structural balance. In that sense, Observation B-1 complements the findings in the main text by
revealing a global network effect on the welfare preference.
Figure B-1. Global network effect on contribution
OBSERVATION B-2. The behavior on the complete network is better captured by welfare
preference than inequality aversion or rationality.
25 one-sided p-value=0.031 by two-sample t-test clustered by subjects

Figure B-2. Average contribution in LCom, and that

conditional on the focal player earning less than all others in
the network in the previous round
Table B-1. Average contribution in LCom

Average contribution in LCom
conditional on the focal player earning the
unconditional
least in the network in the previous round
13.51 19.24
[0.80] [1.78]
As shown in Figure B-2, players on average contribute more than 𝛿 in the complete network
(p-value=0.000 from one-sided t test clustered by subjects). Note that this result confirms the
existing observation on overcontribution in the public goods experiment with an interior dominant
strategy (Keser, 1996). Moreover, subjects with lowest earning in the complete network contribute
on average higher than 𝛿 in the subsequent period (p-value=0.000 by one-sided t test clustered by
subjects). See Table B-1 for the relevant statistics. In the way explained in Section 4.1, the finding
supports Remark W and goes against Remark IA.
We also estimate the behavioral models based on Corollary IA-Com and (3) in Theorem W
(following the same approach described in Section 4.2). As shown in Table B-2, the welfare model
achieves higher likelihood with fewer parameters than does inequality aversion. As suggested by
AIC, welfare preference stays preferred over inequality aversion and rationality model in the
complete network. The parameter estimation in Table B-3 also confirms the pattern 𝛼𝑖 < 𝛽𝑖 , 26
which again indicates the predominance of welfare preference - see Section 4.2 for analogous
arguments. In a nutshell, our finding in the main experiment that welfare model explains the game
better than do inequality aversion and self interest is robust to the setting of complete network.
26 p-value=0.000 by one-sided signed-rank paired-sample test based on individual estimates

Table B-2. Model Comparison*
Treatment LCom
-2089.44 [-2291.46; -
LL 2324.52]
4338.88 (80)
AIC (df) [4822.92 (120);
4729.04 (40)]
* Model W [Model IA; Model R]
Table B-3. MLE Results

Treatment Model IA Model W
𝛼𝑖 𝛽𝑖 𝜎𝑖𝐼𝐴 𝜆𝑖 𝜎𝑖𝑊
0.006 0.060 6.558 0.070 4.868
LCom
(0.040) (0.099) (4.374) (0.065) (2.656)
mean (standard deviation)
all parameters except 𝛼𝑖 significant at 0.05 level by signrank test 27
To sum up, we show in this section that the global network affects individual contribution
through manipulating the saliency of one’s network position. Also, our findings with the complete
network in this section confirm the results from the main experiment regarding the prevalence of
welfare preference (over inequality aversion and self interest) in the network games.
Appendix C. Proofs
P ROOF OF THEOREM W
𝜕𝜋𝑖 (𝒙) 𝜕𝜋𝑗 (𝒙)
Observe 𝜕𝑥𝑖
= 𝛿 − 𝑥𝑖 , 𝜕𝑥𝑖
= 𝛿𝑔𝑗𝑖 for 𝑗≠𝑖 , and Π𝑖 (𝒙) = (1 − ∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 )𝜋𝑖 (𝒙) +
∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 𝜋𝑗 (𝒙). Thus

𝜕 𝜕𝜋𝑖 (𝒙) 𝜕𝜋𝑗 (𝒙)
Π𝑖 (𝒙) = (1 − ∑ 𝜆𝑖𝑗 𝑔𝑖𝑗 ) + ∑ 𝜆𝑖𝑗 𝑔𝑖𝑗
𝜕𝑥𝑖 𝑗 𝜕𝑥𝑖 𝜕𝑥𝑖
𝑗
= (1 − ∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 )(𝛿 − 𝑥𝑖 ) + 𝛿 ∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 𝑔𝑗𝑖

𝜕
Given 1 − ∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 > 0 , 𝜕 𝑥𝑖
Π𝑖 (𝒙) decreases in 𝑥𝑖 . So 𝑥𝑖∗ is identified by the first-order
𝜕
condition 𝜕𝑥 Π𝑖 (𝒙) = 0.
𝑖
∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗 𝑔𝑗𝑖

𝑥𝑖∗ = 𝛿 + 𝛿
1 − ∑𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗
27The estimated 𝛼𝑖 s are only slightly above zero. As explained in Section 4.2, the seemingly small values of 𝛼𝑖
indicates that the welfare model explains the data better than inequity aversion.

𝛿
When 𝑔𝑖𝑗 = 𝑔𝑗𝑖 ∈ {0,1} , we simplify the above expression as 𝑥𝑖∗ = 1−∑ .
𝑗 𝜆𝑖𝑗 𝑔𝑖𝑗
𝛿
If additionally we have 𝜆𝑖𝑗 ≡ 𝜆𝑖 for all 𝑗, then it follows that 𝑥𝑖∗ = 1−𝜆 𝑑 . ∎
𝑖 𝑖
As for the inequality aversion model, we will first show the proof of Proposition A-1, which
lays the foundation of the proofs of other results regarding inequity aversion.
P ROOF OF P ROPOSITION A-1. In the range-(𝑘 + 1), we write

(𝑑𝑖 )𝑖 (𝑘)𝑖
Π𝑖 (𝒙) = 𝜋𝑖 (𝒙) − ∑ 𝛼𝑖𝑗 (𝜋𝑗 (𝒙) − 𝜋𝑖 (𝒙)) − ∑ 𝛽𝑖𝑗 (𝜋𝑖 (𝒙) − 𝜋𝑗 (𝒙))
𝑗=(𝑘+1)𝑖 𝑗=(1)𝑖
Rearranging,
(𝑑𝑖 )𝑖 (𝑘)𝑖 (𝑑𝑖 )𝑖 (𝑘)𝑖
Π𝑖 (𝒙) = 𝜋𝑖 (𝒙) (1 + ∑ 𝛼𝑖𝑗 − ∑ 𝛽𝑖𝑗 ) − ∑ 𝛼𝑖𝑗 𝜋𝑗 (𝒙) + ∑ 𝛽𝑖𝑗 𝜋𝑗 (𝒙)

𝑗=(𝑘+1)𝑖 𝑗=(1)𝑖 𝑗=(𝑘+1)𝑖 𝑗=(1)𝑖
Thus the derivative of Π𝑖 (𝒙) within range-(𝑘 + 1) is:

(𝑑𝑖 )𝑖 (𝑘)𝑖 (𝑑𝑖 )𝑖 (𝑘)𝑖
𝜕Π𝑖 (𝒙)
= (1 + ∑ 𝛼𝑖𝑗 − ∑ 𝛽𝑖𝑗 ) (𝛿 − 𝑥𝑖 ) − 𝛿 ∑ 𝛼𝑖𝑗 + 𝛿 ∑ 𝛽𝑖𝑗
𝜕𝑥𝑖
𝑗=(𝑘+1)𝑖 𝑗=(1)𝑖 𝑗=(𝑘+1)𝑖 𝑗=(1)𝑖
(𝑑 )
The concavity of Π𝑖 (𝒙) within range-(𝑘 + 1) is ensured by the fact that 1 + ∑𝑗=(𝑘+1)
𝑖 𝑖
𝛼 −
𝑖 𝑖𝑗
(𝑘)
𝑖
∑𝑗=(1) 𝛽 > 0, which can be implied from the assumption 1 − ∑𝑗 𝛽𝑖𝑗 𝑔𝑖𝑗 > 0.
𝑖 𝑖𝑗
That said, player 𝑖’s best response within range-(𝑘 + 1), hereafter denoted by 𝑥𝑖𝑘+1 (𝒙−𝑖 ), is as
follows. Recall the 𝑋-notation below is defined in Appendix A.
𝑥𝑖𝑘+1 (𝒙−𝑖 ) =
(𝑘) (𝑑 ) (𝑘) (𝑑 )
𝑖 𝛽 −∑ 𝑖 𝑖
∑𝑗=(1) 𝛼 𝑖 𝛽 −∑ 𝑖 𝑖
∑𝑗=(1) 𝛼
𝑖𝑗 𝑗=(𝑘+1) 𝑖𝑗 𝑖𝑗 𝑗=(𝑘+1) 𝑖𝑗
𝑖 𝑖 𝑖 𝑖
𝛿+𝛿 (𝑑𝑖 ) (𝑘)𝑖
, 𝑖𝑓 𝛿 + 𝛿 (𝑑𝑖 ) (𝑘)𝑖
∈ (𝑋(𝑘+1)𝑖 (𝒙−𝑖 ), 𝑋(𝑘)𝑖 (𝒙−𝑖 ))
𝑖
1+∑𝑗=(𝑘+1) 𝛼𝑖𝑗−∑𝑗=(1) 𝛽𝑖𝑗 𝑖
1+∑𝑗=(𝑘+1) 𝛼𝑖𝑗−∑𝑗=(1) 𝛽𝑖𝑗
𝑖 𝑖 𝑖 𝑖
(𝑘) (𝑑 )
∑𝑗=(1) 𝛼
𝑖𝑗 𝑗=(𝑘+1) 𝑖𝑗
𝑖 𝑖
𝑋(𝑘)𝑖 (𝒙−𝑖 ), 𝑖𝑓 𝛿 + 𝛿 (𝑑𝑖 ) (𝑘)𝑖
> 𝑋(𝑘)𝑖 (𝒙−𝑖 ) .
𝑖
1+∑𝑗=(𝑘+1) 𝛼𝑖𝑗 −∑𝑗=(1) 𝛽𝑖𝑗
𝑖 𝑖
(𝑘) (𝑑 )
∑𝑗=(1) 𝛼
𝑖𝑗 𝑗=(𝑘+1) 𝑖𝑗
𝑖 𝑖
𝑋(𝑘+1)𝑖 (𝒙−𝑖 ), 𝑖𝑓 𝛿 + 𝛿 (𝑑𝑖 ) (𝑘)𝑖
< 𝑋(𝑘+1)𝑖 (𝒙−𝑖 )
𝑖
1+∑𝑗=(𝑘+1) 𝛼𝑖𝑗 −∑𝑗=(1) 𝛽𝑖𝑗
{ 𝑖 𝑖

When player 𝑖’s contribution 𝑥𝑖 increases, her payoff rank within neighborhood (𝑘) is lowered (by
(𝑘−1)𝑖 (𝑑𝑖 )
∑ 𝛽 −∑𝑗=(𝑘) 𝑖 𝛼
𝑗=(1)𝑖 𝑖𝑗 𝑖
𝑖𝑗
Lemma A-1). Thus 𝛿 + 𝛿 (𝑑𝑖 ) (𝑘−1)
decreases in value.
1+∑𝑗=(𝑘) 𝑖 𝛼 −∑ 𝑖𝛽
𝑖𝑗 𝑗=(1)𝑖 𝑖𝑗
𝑖
Notice that Π𝑖 (𝒙) is continuous at every 𝑋(𝑘)𝑖 (𝒙−𝑖 ). Thus, Π𝑖 (𝒙) is globally concave with
respect to 𝑥𝑖 . The resulting unique maximizing solution 𝑥𝑖∗ (𝒙−𝑖 ) should be obtained at either an
interior or a boundary point of some range-𝑟. In the former case (interior), the optimal solution is
the point in range-r where the first derivative of Π𝑖 (𝒙) equals 0:
(𝑟−1) (𝑑 )
∑𝑗=(1) 𝑖 𝛽𝑖𝑗 − ∑𝑗=(𝑟)
𝑖 𝑖
𝛼 𝛿
𝑖 𝑖𝑗
𝑥𝑖∗ (𝒙−𝑖 ) =𝛿+𝛿 𝑖
(𝑑𝑖 )𝑖 (𝑟−1)
= (𝑑𝑖 )𝑖 (𝑟−1)
,
1+ ∑𝑗=(𝑟) 𝛼𝑖𝑗 − ∑𝑗=(1) 𝑖 𝛽𝑖𝑗 1+ ∑𝑗=(𝑟) 𝛼𝑖𝑗 − ∑𝑗=(1) 𝑖 𝛽𝑖𝑗
𝑖 𝑖 𝑖 𝑖
𝛿
if (𝑑𝑖 ) (𝑟−1)
∈ (𝑋(𝑟)𝑖 (𝒙−𝑖 ), 𝑋(𝑟−1)𝑖 (𝒙−𝑖 )).
𝑖 𝛼 −∑
1+∑𝑗=(𝑟) 𝑖𝛽
𝑖𝑗 𝑗=(1) 𝑖𝑗
𝑖 𝑖
In the latter case (boundary), the first derivative of Π𝑖 (𝒙) turns from positive to negative at the
optimum 𝑋(𝑟)𝑖 (𝒙−𝑖 ). That is,
𝑥𝑖∗ (𝒙−𝑖 ) = 𝑋(𝑟)𝑖 (𝒙−𝑖 ),
𝛿 𝛿
if 𝑋(𝑟)𝑖 (𝒙−𝑖 ) ∈ ( (𝑑𝑖 )
, (𝑑𝑖 )
).
𝑖 𝛼 −∑(𝑟−1)𝑖 𝛽
1+∑𝑗=(𝑟) 𝑖
1+∑𝑗=(𝑟+1)
(𝑟)𝑖
𝛼𝑖𝑗 −∑𝑗=(1) 𝛽𝑖𝑗
𝑖𝑗 𝑗=(1)𝑖 𝑖𝑗
𝑖 𝑖 𝑖
𝛿 28
Notice the above cases are valid since (𝑑𝑖 )
≥0 , which guarantees the
(𝑑𝑖 )
1+∑ 𝑖 𝑖 𝛽
𝛼𝑖𝑗 −∑𝑗=(1) 𝑖𝑗
𝑗=(𝑑𝑖 +1) 𝑖
𝑖
optimal consumption, 𝑥𝑖∗ (𝒙−𝑖 ), is nonnegative. That concludes the proof. ∎
P ROOF OF THEOREM IA. By Proposition A-1, Player 𝑖’s fairness utility Π𝑖 (𝑥𝑖 ; 𝒙−𝑖 ) is piecewise
concave with respect to her own contribution, 𝑥𝑖 . It is also continuous everywhere, including at
each boundary point that equalizes the focal player’s payoff with that of one of her neighbors.
Given the action space is convex, the existence of pure strategy equilibrium follows from standard
arguments (see, e.g. Theorem 1.2 of (Fudenberg & Tirole, 2010)). ∎
Appendix D.
Experiment
D.1. Experimental protocol
28 Recall 𝑑𝑖 is defined in Appendix A.

In connection with Section 3.2 in the main text, we further illustrate the structuring of the
experiment and the matching protocol in Figures D-1 and D-2 below, respectively.
Figure D-1. The organization of experiment
(a) star cohort
(b) circle cohort

Figure D-2. The matching protocol within a cohort
D.2. Experimental instruction

We present the experimental instruction for treatment HS in this appendix. The instruction can
be straightforwardly adapted to other treatments with the change of payoff or network structure.

The original instruction delivered to the subjects is written in Chinese, and we present here the
version translated to English.
***************************** Instruction: HS *********************************
General. Welcome and thank you for participating in this experiment. In this experiment you will
earn money. From now on until the end of the experiment, please do not communicate with other
participants. If you have any question, please raise your hand. An experimenter will come to your
place and answer your question privately.
The Game. In the experiment we use ECU (Experimental Currency Unit) as the monetary unit.
During the experiment, the profits you make each round will be calculated in ECU. At the end of
the experiment, the balance of the account will be converted from ECUs into Chinese yuan
according to the conversion rate 1 ECU = 0.001 RMB, and paid to your bank account after the
experiment.
In the experiment you will make investment in the pollution reduction on behalf of a country. On
the one hand, every dollar of your investment will return a benefit of 30 dollars to your country due
to the environmental improvement. On the other hand, the environmental improvement will require
a series of facility upgrades, which incurs a total cost that equals to 0.5×(your investment amount)2.
Because of the geographic proximity, the environment of your neighboring countries will also get
improved: Every dollar of your investment will also return a benefit of 30 dollars to each of your
neighboring countries due to the environmental improvement. Likewise, every dollar invested by
your neighbor will also bring you 30 dollars’ benefit. Every round, you can invest up to 75 dollars.
The experiment lasts for 20 rounds. In each round, participants will be organized in a network
shown in Figure 1 below. In this network, people connected to you are your neighbors. Every round
your neighbors will be different people. If you ever take a core position (C) in any round, you will
remain at the core position throughout the experiment. Similarly, if you ever take a peripheral
position (P1, P2, or P3) in any round, you will remain at the peripheral position throughout the
experiment. Your position in the network will be marked blue, shown on the computer screen.
Figure 1. The network

Examples.

Suppose you are player P1 in the network above. Your neighbor is therefore player
C. If player C invests 30 and you (player P1) invest 20, your payoff will be:
1
30 × 20 + 30 × 30 − 2 × 202 = 1300 ECU
Similarly, if you are player C in the network, your neighbors are player P1, P2, P3.
If player P1, P2, P3 invest 20, 30, 40 respectively, and you (player C) invest 30,
your payoff will be:
1
30 × 30 + 30 × （20 + 30 + 40） − 2 × 302 = 3150 ECU
After each round, you will get to see your profit, your decision (how much you invested), and
your neighbor(s)’s profit this round.
Before the game start, you are required to complete a quiz, which covers the important
knowledge about the game. The quiz will take place on your computer. You will not start to play
the game unless you answer all the questions in the quiz correctly.
**************************************************************************************
D.3. Software interface

This section provides snapshots of the experimental software. The software is programmed
with zTree ((Fischbacher, 2007)). Subjects began with a quiz testing their understanding of the
game, with no earning accumulated to the game. The quiz screens are shown in Figure D-3. The
actual decision making interfaces are found in Figure D-4. The original text on the experimental
interface is in Chinese, and we present here the version translated to English. For conciseness, we
only include the interfaces for treatment LC. The other cases not covered in the screenshots were
presented to the subjects in an analogous way.

Figure D-3. Quiz
Figure D-4. Decision making

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Yang Zhang, Social Preferences in Network Games

Social Preferences in Network Games: Theory and Laboratory Evidence

JEL classifications: L14, C72, D91, C92

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Goyal, 2010), but it is not necessarily true in our model.

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2.1. Base model

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2.2. The Model of Welfare

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2.3. The Model of Inequality aversion

(Neumark & Postlewaite, 1998).

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THEOREM IA (equilibrium of Inequality Aversion). There exists a pure strategy equilibrium in

Remark IA is a direct consequence of the player’s best response (which is specified in

3.1. Experimental Design

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Figure 1. Experimental network structures

3.2. Experimental protocol

likely disrupt the subject’s learning.

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Figure 2. Average contributions in star treatments

Figure 3. Average contributions in circle treatments

Table 2. Summary of contributions

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Figure 4. payoffs in star treatments

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Figure 5. Average contribution in the circle treatments

Table 4. Average contribution in the circle treatments

4.2. Individual-level analysis

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0.102 0.010 0.091 0.222 5.62 0.110 0.189 4.34

0.000 0.049 4.82 0.093 3.84

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5. Conclusion and Discussion

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Appendix A. The Equilibrium of Inequality Aversion

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A.2. Equilibrium on the experimental networks

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Figure A-1. The networks illustrated with notations

upper bar vs. lower bar).

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𝜋𝑏̅ (𝒙∗ ) > 𝜋𝑏 (𝒙∗ ).

𝜋𝑤 (𝒙∗ ) > 𝜋𝑏 (𝒙∗ ).

𝜋𝑏 (𝒙∗ ) > 𝜋𝑤 (𝒙∗ ).

COROLLARY IA-COM (equilibrium of Inequality Aversion in Complete network). There exists

𝜋(𝑟𝑖+1) (𝒙∗ ) < ⋯ < 𝜋(𝑁) (𝒙∗ ), for all 𝑖.

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Appendix B. Comparison to Behavior on the Complete Network

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Figure B-1. Global network effect on contribution

25 one-sided p-value=0.031 by two-sample t-test clustered by subjects

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Figure B-2. Average contribution in LCom, and that

Table B-1. Average contribution in LCom