Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests that many people are strongly motivated by concerns for fairness and reciprocity. Moreover, several theoretical papers have been written showing that the observed phenomena can be explained in a rigorous and tractable manner. These theories in turn induced a new wave of experimental research offering additional exciting insights into the nature of preferences and into the relative performance of competing theories of fairness. The purpose of this paper is to review these recent developments, to

We examine the characteristics and relative strength of third-party sanctions in a series of experiments. We hypothesize that egalitarian distribution norms and cooperation norms apply in our experiments, and that third parties, whose economic payoff is unaffected by the norm violation, may be willing to enforce these norms although the enforcement is costly for them. Almost two-thirds of the third parties indeed punished the violation of the distribution norm and their punishment increased the more the norm was violated. Likewise, up to roughly 60 % of the third parties punished violations of the cooperation norm. Thus, our results show that the notion of strong reciprocity extends to the sanctioning behavior of ‘‘unaffected’’ third parties. In addition, these experiments suggest that thirdparty punishment games are powerful tools for studying the characteristics and the content of social norms. Further experiments indicate that second parties, whose economic payoff is reduced by the norm violation, punish the violation much more strongly than do third parties.

Abstract not found

Abstract: In recent years a large number of experimental studies have documented the existence of strong reciprocity among humans. Strong reciprocity means that people willingly repay gifts and punish the violation of cooperation and fairness norms even in anonymous one-shot encounters with genetically unrelated strangers. We provide historical and experimental evidence suggesting that ultimate theories of kin selection, reciprocal altruism, costly signaling and indirect reciprocity do not provide satisfactory evolutionary explanations of strong reciprocity. The problem of these theories is that they can rationalize strong reciprocity only if it is viewed as maladaptive behavior whereas the evidence suggests that it is an adaptive trait. Thus, we conclude that alternative evolutionary approaches are needed to provide ultimate accounts of strong reciprocity. 1 This paper is part of a research project on strong reciprocity financed by the Network on Economic Environments and the Evolution of Individual Preferences and Social Norms of the MacArthur Foundation. Fehr and Henrich In recent years a large body of evidence has emerged from laboratory experiments indicating that a substantial fraction of people willingly repay gifts and punish the violation of cooperation and fairness norms, even in anonymous one-shot encounters with genetically unrelated strangers (see,

Those who contribute to a public good sometimes experience punitive sentiments toward others. But is the system that produces these sentiments an adaptation and, if so, which collective action problem was it designed to solve? Prior results from experimental economics show that acts of free riding are sometimes punished; that punishment deters free-riding; and that the risk or actuality of punishment recruits higher levels of cooperation in a joint effort. This suggests that one function of punitive sentiments could be to recruit labor for collective actions. However, adaptations designed to cause participation in collective actions could not have evolved unless there were some mechanism that protected those who participated from having lower fitness than non-participating free riders. Therefore, a second possible function of punishment could be to eliminate or reverse fitness differentials that favor free rider designs over participant designs. To map the computational structure of this motivational adaptation (and hence identify its specific function) requires data that relate an individual's circumstances to his or her desire to punish. Herein we report such data. The results indicate that the computational system that regulates one's level of punitive sentiment in collective action contexts is functionally specialized for removing the fitness advantage enjoyed by free riders, rather than for labor recruitment or other functions. Results also support the hypothesis that a separate pro-reward motivational system exists that appears designed to handle the problem of labor recruitment. Rational choice counterexplanations for punitive sentiments were considered, but eliminated on the basis of the evidence.

This paper surveys the evolutionary game theoretic literature on reciprocity in human interactions, dealing both with long-term relationships and with sporadic interactions. Four basic themes, repetition, commitment, assortation, and parochialism, appear repeatedly throughout the literature. Repetition can give rise to the evolution of behavior that exhibits reciprocity-like features but a vast array of other behaviors are also stable. In sporadic interactions, reciprocity can be stable if the propensity to punish selfish actions can induce opportunists to cooperate, if reciprocators themselves behave opportunistically when they expect others to do so, or if matching is sufficiently assortative.

This paper proposes an analytical-cum-conceptual framework for understanding the nature of institutions as well as their changes. First, it proposes a new definition of institution based on the notion of common knowledge regarding self-sustaining features of social interactions with a hope to integrate various disciplinary approaches to institutions and their changes. Second, it specifies some generic mechanisms of institutional coherence and change-- overlapping social embeddedness, Schumpeterian innovation in bundling games and dynamic institutional complementarities -- useful for understanding the dynamic interactions of economic, political, social, organizational and cognitive factors.

Summary A collective action (CA), i.e., a group of individuals jointly producing a resource to be shared equally among themselves, is a common interaction in organizational contexts. Ancestral humans who were predisposed to cooperate in CAs would have risked being disadvantaged compared to free riders, but could have overcome this disadvantage through ‘greenbeard ’ reciprocity, that is, by assessing the extent to which co-interactants were also predisposed towards cooperation, and then cooperating to the extent that they expected co-interactants to reciprocate. Assessment of others ’ cooperativeness could have been based on the direct monitoring of, and on reputational information about, others ’ cooperativeness. This theory predicts that (1) CA participants should monitor accurately, and (2) perceived higher-cooperators should have better reputations. These predictions were supported in a study of real-life CAs carried out by a group of Shuar hunter-horticulturalists: (1) members accurately distinguished ‘intentional’ non-cooperators (who could have cooperated but chose not to) from ‘accidental ’ noncooperators (who were unable to cooperate), and their perceptions of co-member cooperativeness accurately reflected more objective measures of this cooperativeness; and (2) perceived intentional cooperators had better reputations than perceived intentional non-cooperators.

Adaptive learning models that have been tested against experimental data typically share two features: (i) initial attractions (or beliefs) are given exogenously, and (ii) learning is based on the performance of stage-game actions rather than repeated game strategies. We develop a model of learning which endogenizes initial attractions and allows for the learning of repeated game strategies. Learning occurs in two phases.

The rationality of voluntary cooperation Cooperation problems arise when individual incentives and social optimality diverge. This tension has intrigued social scientists and philosophers for decades. In this chapter we look at the cooperation problem from the viewpoint of experimental economics, a subfield of economics which studies decision-making under controlled laboratory conditions and under real monetary incentives. 2Years of careful experimentation have led to a body of results, which may shed new light on old philosophical questions, and on the foundations of the behavioural sciences. In particular our results will shed light on selfishness as one important foundational assumption of the behavioural sciences. The selfishness assumption has long been criticized (by Sen 1977, for instance, in a highly influential article). Yet only recently experimentalists have started to systematically scrutinize the selfishness assumption. We will discuss some selected evidence in this chapter on how people solve the cooperation problem and to what extent people’s cooperation behaviour can be explained by their (non-)selfish preferences.