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The subfield of social preferences arose from empirical challenges to the Neoclassical Self-Interest Paradigm, which dominated economic theory under the Axiomatic Consumer Theory and Revealed Preference Approach. This paradigm assumed individuals maximize only their own material payoffs, but experimental games in the 1980s, like the ultimatum and dictator games, consistently revealed other-regarding behaviors. These anomalies prompted economists to develop formal models that incorporate social motives into utility functions, marking a foundational shift in behavioral economics.
Early theoretical responses included the Altruism and Other-Regarding Preferences Paradigm, exemplified by Gary Becker's work on family and charitable giving. This framework extended standard utility theory to include the well-being of others, maintaining rational choice axioms while acknowledging social concerns. However, it could not fully explain behaviors such as costly punishment of unfairness or reciprocal actions, leading to more specialized schools that directly rival the self-interest assumption.
The Inequity Aversion Paradigm, pioneered by Ernst Fehr and Klaus Schmidt and independently by Gary Bolton and Axel Ockenfels, became a major school in the 1990s. It posits that individuals have aversion to unequal outcomes, modeling utility with terms that penalize disparities in payoffs. This framework explains why people sacrifice resources to reduce inequality in bargaining and public goods experiments. Concurrently, the Reciprocity Paradigm, developed by Matthew Rabin, introduced psychological game theory to emphasize the role of intentions. Rabin's fairness equilibrium models how perceived kindness or unkindness drives reciprocal behavior, moving beyond outcome-based preferences to incorporate beliefs and social norms.
These rival paradigms—Inequity Aversion and Reciprocity—structured the core of Behavioral Social Preferences Theory, often integrated under the broader Behavioral Economics movement. They represent distinct theoretical commitments: one focuses on distributional justice, while the other on intentionality and dynamic interactions. Their development was fueled by experimental economics, which provided the empirical basis for rejecting pure self-interest models and for refining these schools through controlled tests.
Today, social preferences are a staple in behavioral economics, influencing microeconomic theory, policy design, and fields like labor and organizational economics. The paradigms continue to evolve with hybrid models and cross-disciplinary insights from psychology and neuroscience, but the historical spine from self-interest to inequity aversion and reciprocity remains central. This progression underscores a lasting transformation in economics toward empirically grounded frameworks that account for the social dimensions of human decision-making.