Fairness and Retaliation: The Economics of Reciprocity
01 Aug 2000-Journal of Economic Perspectives (Princeton University Press)-Vol. 14, Iss: 3, pp 159-181
TL;DR: The authors discusses the economic implications of reciprocity and shows that a substantial fraction of people behave according to this dictum: people repay gifts and take revenge even in interactions with complete strangers and even if it is costly for them and yields neither present nor future material rewards.
Abstract: This article discusses the economic implications of reciprocity. A long-standing tradition in economics views human beings as exclusively self-interested. In most economic accounts of individual behavior and aggregate social phenomena, the vast forces of greed are put at the center of the explanation. However, many people deviate from purely self-interested behavior in a reciprocal manner. Reciprocity means that in response to friendly actions, people are frequently much nicer and much more cooperative than predicted by the self-interest model; conversely, in response to hostile actions they are frequently much more nasty and even brutal. There is considerable evidence that a substantial fraction of people behave according to this dictum: People repay gifts and take revenge even in interactions with complete strangers and even if it is costly for them and yields neither present nor future material rewards. This notion of reciprocity is thus very different from kind or hostile responses in repeated interactions that are solely motivated by future material gains.
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TL;DR: The theory takes into account that people evaluate the kindness of an action not only by its consequences but also by the intention underlying this action, and explains the relevant stylized facts of a wide range of experimental games.
Abstract: This paper presents a formal theory of reciprocity. Reciprocity means that people reward kind actions and punish unkind ones. The theory takes into account that people evaluate the kindness of an action not only by its consequences but also by the intention underlying this action. The theory explains the relevant stylized facts of a wide range of experimental games. Among them are the ultimatum game, the gift-exchange game, a reduced best-shot game, the dictator game, the prisoner's dilemma, and public goods games. Furthermore, the theory explains why the same consequences trigger different reciprocal responses in different environments Finally the theory explains why in bilaterial interactions outcomes tend to be "fair" whereas in competitive markets even extremely unfair distributions may arise.
2,207 citations
TL;DR: This article found that the canonical model is not supported in any society studied, and that group-level differences in economic organization and the degree of market integration explain a substantial portion of the behavioral variation across societies.
Abstract: We can summarize our results as follows. First, the canonical model is not supported in any society studied. Second, there is considerably more behavioral variability across groups than had been found in previous cross-cultural research, and the canonical model fails in a wider variety of ways than in previous experiments. Third, group-level differences in economic organization and the degree of market integration explain a substantial portion of the behavioral variation across societies: the higher the degree of market integration and the higher the payoffs to cooperation, the greater the level of cooperation in experimental games. Fourth, individual-level economic and demographic variables do not explain behavior either within or across groups. Fifth, behavior in the experiments is generally consistent with economic patterns of everyday life in these societies.
2,019 citations
TL;DR: The authors build a model in which the choices that individuals make depend not just on financial implications, but also on the nature and extent of scrutiny by others, the particular context in which a decision is embedded, and the manner in which participants and tasks are selected.
Abstract: A critical question facing experimental economists is whether behavior inside the laboratory is a good indicator of behavior outside the laboratory. To address that question, we build a model in which the choices that individuals make depend not just on financial implications, but also on the nature and extent of scrutiny by others, the particular context in which a decision is embedded, and the manner in which participants and tasks are selected. We present empirical evidence demonstrating the importance of these various factors. To the extent that lab and naturally occurring environments systematically differ on any of these dimensions, the results obtained inside and outside the lab need not correspond. Focusing on experiments designed to measure social preferences, we discuss the extent to which the existing laboratory results generalize to naturally-occurring markets. We summarize cases where the lab may understate the importance of social preferences as well as instances in which the lab might exaggerate their importance. We conclude by emphasizing the importance of interpreting laboratory and field data through the lens of theory.
1,912 citations
TL;DR: In this paper, the authors present a formal theory of reciprocity, which takes into account that people evaluate the kindness of an action not only by its consequences but also by its underlying intention.
1,912 citations
TL;DR: For example, the authors used game theory, the economics of the family, and endogenous growth theory to study general social interactions and found that observable outcomes may be generated by many different interaction processes, so empirical findings are open to a wide variety of interpretations.
Abstract: Economics is broadening its scope from analysis of markets to study of general social interactions. Developments in game theory, the economics of the family, and endogenous growth theory have led the way. Economists have also performed new empirical research using observational data on social interactions, but with much less to show. The fundamental problem is that observable outcomes may be generated by many different interaction processes, so empirical findings are open to a wide variety of interpretations. To make sustained progress, empirical research will need richer data, including experiments in controlled environments and subjective data on preferences and expectations.
1,687 citations
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TL;DR: In this article, the authors examine the role that institutions, defined as the humanly devised constraints that shape human interaction, play in economic performance and how those institutions change and how a model of dynamic institutions explains the differential performance of economies through time.
Abstract: Examines the role that institutions, defined as the humanly devised constraints that shape human interaction, play in economic performance and how those institutions change and how a model of dynamic institutions explains the differential performance of economies through time. Institutions are separate from organizations, which are assemblages of people directed to strategically operating within institutional constraints. Institutions affect the economy by influencing, together with technology, transaction and production costs. They do this by reducing uncertainty in human interaction, albeit not always efficiently. Entrepreneurs accomplish incremental changes in institutions by perceiving opportunities to do better through altering the institutional framework of political and economic organizations. Importantly, the ability to perceive these opportunities depends on both the completeness of information and the mental constructs used to process that information. Thus, institutions and entrepreneurs stand in a symbiotic relationship where each gives feedback to the other. Neoclassical economics suggests that inefficient institutions ought to be rapidly replaced. This symbiotic relationship helps explain why this theoretical consequence is often not observed: while this relationship allows growth, it also allows inefficient institutions to persist. The author identifies changes in relative prices and prevailing ideas as the source of institutional alterations. Transaction costs, however, may keep relative price changes from being fully exploited. Transaction costs are influenced by institutions and institutional development is accordingly path-dependent. (CAR)
26,011 citations
Book•
01 Aug 1975
TL;DR: This chapter discusses the development of Causality Orientations Theory, a theory of personality Influences on Motivation, and its application in information-Processing Theories.
Abstract: I: Background.- 1. An Introduction.- 2. Conceptualizations of Intrinsic Motivation and Self-Determination.- II: Self-Determination Theory.- 3. Cognitive Evaluation Theory: Perceived Causality and Perceived Competence.- 4. Cognitive Evaluation Theory: Interpersonal Communication and Intrapersonal Regulation.- 5. Toward an Organismic Integration Theory: Motivation and Development.- 6. Causality Orientations Theory: Personality Influences on Motivation.- III: Alternative Approaches.- 7. Operant and Attributional Theories.- 8. Information-Processing Theories.- IV: Applications and Implications.- 9. Education.- 10. Psychotherapy.- 11. Work.- 12. Sports.- References.- Author Index.
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TL;DR: The Economic Institutions of Capitalism as mentioned in this paper is a seminal work in the field of economic institutions of capitalism. Journal of Economic Issues: Vol. 21, No. 1, pp. 528-530.
Abstract: (1987). The Economic Institutions of Capitalism. Journal of Economic Issues: Vol. 21, No. 1, pp. 528-530.
16,767 citations
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TL;DR: This paper showed that if some people care about equity, the puzzles can be resolved and that the economic environment determines whether the fair types or the selesh types dominate equilibrium behavior in cooperative games.
Abstract: There is strong evidence that people exploit their bargaining power in competitivemarkets butnot inbilateral bargainingsituations. Thereisalsostrong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained, although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selesh types dominate equilibrium behavior.
8,783 citations