These experimental findings then inspired various new economic models to characterize agent's altruism, fairness and reciprocity concern between 1990 and 2010.
More recently, there are growing amounts of field experiments that study the shaping of social preference and its applications throughout society.
Whilst nature encompasses biological makeup and genetics, nurture refers to the social environment in which one develops.
[4] An understanding of social preferences and the disparity that occurs across individuals and groups can help create models that better represent reality.
Within the financial sector, research supports the existence of a positive relationship between the elements of trust and reciprocity to economic growth as observed in a reduction of defaults in lending programs as well as the effectiveness of government and central banking policy.
[5] The well-functioning of social preferences may assist society in paving the way to new developments through a decrease in the likelihood of market failures as well as a reduction in transaction costs.
Kin selection is an evolutionary strategy where some specific behavioral traits are favored to benefit close relatives' reproduction.
There are also economic models proposing that parents transmit their social preferences to their children by demonstrating their own pro-social behavior.
Psychologist Jean Piaget was among the first to propose that cognitive development is a prerequisite in moral judgment and behavior.
He argued for the importance of social interaction with others rather than learning in moral development, which requires the understanding of both rules and others' behavior.
Other important cognitive skills in fostering pro-social behavior include perspective taking and moral reasoning,[21][22] which are supported by most empirical evidence.
However, many research found that subjects' behavior robustly and systematically deviated from the prediction from self-interest hypothesis, but could be explained by social preferences including altruism, inequity aversion and reciprocity.
[27] In this game, the average share decreases to 20% of the fixed amount, however, more than 60% of the subjects still propose a positive offer.
For example, Daniel Kahneman, Jack Knetsch and Richard Thaler found that the concern for fairness constrains firm's profit seeking behavior (e.g. raise price after an increase in demand).
However, the agent's utility decreases with both positive and negative payoff differences between self and each other opponent in the reference group.
[41] Other researchers further generalize Rabin (1993)'s model by studying repeated interactions in N-person extensive form games,[42] and also by including inequity aversion into agent's preference.
[40] Researchers have argued that the failure of recognizing social preference will lead to a biased understanding of much important economic behavior.
[48] The distributive and reciprocal preferences mentioned previously are integral in good government and the upholding of ethical standards.
Without the existence of these preferences, it is unlikely that society would achieve desirable allocations of economic goods due to self-interest and the "free rider" problem.
Research and experimentation into social preferences assists in the design of optimal incentives used in public policy.