Recent research has shown the usefulness of social preferences for explaining behavior in laboratory experiments. This paper demonstrates that models of social preferences are particularly powerful in explaining behavior if they are embedded in a setting of heterogeneous actors with heterogeneous (social) preferences. For this purpose a simple model is introduced that combines the basic ideas of inequity aversion, social welfare preferences, reciprocity and heterogeneity. This model is applied to 43 games and it can be shown that its predictive accuracy is clearly higher than that of the isolated approaches. Furthermore, it can explain most of the "anomalies" (the "contradictions") that are discussed in Goeree and Holt (2001).

TUC working papers in economics