For several decades, a growing body of research has shown that humans do not always
choose to maximize material payoffs. Economists following the lead of psychologists Daniel
Kahneman and Amos Tversky (1979) and Matthew Rabin (1993) have built on such research
to suppose that individuals are attentive to fair distribution rewards between themselves as
well as personal payoffs. (Ernst Fehr and Klaus Schmidt (1999)) An alternative approach,
suggested by Elizabeth Hoffman, Kevin McCabe and Vernon Smith (1996) argue that laboratory
subjects that perceive a potential for future interaction as approximated by social
distance act on a preference for reciprocity.
Both approaches capitalize on the power of psychology to enhance understanding of
economic exchanges between particular people in specific laboratory conditions. Yet, psychology
is not only concerned with the problem of explaining behavior, but it is also in the
business of modifying behavior. On of the shelves of the......

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Title: Can Contract Theory Explain Social Preferences?
Approximate Word Count: 3403
Approximate Pages: 14 (250 words per double-spaced page)

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