Selective Beliefs over Preferences∗

People tend to believe what they want to believe. In this paper, I examine how people interpret others’ behavior to form beliefs about others’ preferences. I develop a “selective beliefs” model of social preferences in which people have intrinsic preferences over outcomes and also hold prior beliefs about the preferences of others. I propose that people attempt to selectively perceive and interpret others’ behavior such that their posterior beliefs about others’ preferences minimally interfere with their own self-interest. From a general model, I derive two specific models designed for the regression analysis of a semi-transparent simplified ultimatum game experiment, where I assume that the second-mover forms posterior beliefs about first-mover’s preferences over the second-mover’s two possible outcome choices. The inequality aversion model is designed to measure the second-mover’s behavioral response to an available signal indicating that the first-mover has some degree of aversion to inequality. The income concern model measures the second-mover’s behavioral response to an available signal indicating that the first-mover is either concerned or unconcerned about income. ∗I am ever grateful to my thesis adviser, Professor Botond Kőszegi, for his invaluable input and for coolly fielding an extraordinary number of questions on everything from psychology and economics to word-processing. I also thank Professor Roger Craine for his generous advice on the research process.