Academic journal article Economic Inquiry

Behavioral Foundations of Reciprocity: Experimental Economics and Evolutionary Psychology

Academic journal article Economic Inquiry

Behavioral Foundations of Reciprocity: Experimental Economics and Evolutionary Psychology

Article excerpt

I. INTRODUCTION

Theorists have long studied the fundamental problem that cooperative, socially efficient outcomes generally cannot be supported as equilibria in finite games. The puzzle is the occurrence of cooperative behavior in the absence of immediate incentives to cooperate. For example, in two-person bargaining experiments, where noncooperative behavior does not result in efficient outcomes, we observe more cooperative behavior and greater efficiency than such environments are expected to produce. Similarly, in public good experiments with groups varying in size from four to 100 people, the participants tend to achieve much higher payoff levels than predicted by noncooperative theory. Moreover, examples of cooperative behavior achieved by decentralized means have a long history in the human experience. Anthropological and archaeological evidence suggest that sharing behavior is ubiquitous in tribal cultures that lack markets, monetary systems, or other means of storing and redistributing wealth (see, e.g., Cosmides and Tooby [1987; 1989]; Isaac [1978]; Kaplin and Hill [1985]; Tooby and De Vote [1987]; Trivers [1971]).

In this paper we draw together theoretical and experimental evidence from game theory, evolutionary psychology, and experimental economics to develop a reciprocity framework for understanding the persistence of cooperative outcomes in the face of contrary individual incentives. The theory of repeated games with discounting or infinite time horizons allows for cooperative solutions, but does not yield conditions for predicting them (Fudenberg and Tirole [1993]). Recent research in evolutionary psychology (Cosmides and Tooby [1987; 1989; 1992]) suggests that humans may be evolutionarily predisposed to engage in social exchange using mental algorithms that identify and punish cheaters. Finally, a considerable body of research in experimental economics now identifies a number of environmental and institutional factors that promote cooperation even in the face of contrary individual incentives (Davis and Holt [1993]; Isaac and Walker [1988a,b; 1991]; Isaac, Walker and Thomas [1984]; Isaac, Walker and Williams [1991]). Moreover, these experimental results indicate that trust and trustworthiness play a much greater role than the evolutionary psychologists' punish-cheaters model would suggest. We hypothesize that humans' abilities to read one anothers' minds (Baron-Cohen [1995]) in social situations facilitates reciprocity.

II. REPEATED GAMES

Repeated-game theory offers two explanations of cooperation based on self-interest: self-enforcing equilibria and reputations. Self-enforcing equilibria are based on the idea that players can credibly punish noncooperative defections. The nagging problem with self-enforcing cooperative equilibria is that there are many equilibria in such games with cooperation being only one possibility.

Experiments demonstrating that subjects cooperate in games with repeated play and relatively short finite horizons (Selten and Stoecker [1986]; Rapoport [1987]) suggest reputations are important in games with incomplete information (Kreps et al. [1982]). The idea is that if players are uncertain about other players' types, then the possibility emerges that players will mimic (develop a reputation as) a type different from their own. In circumstances where cooperation is mutually beneficial players have an incentive to mimic cooperative behavior.

In the examples given by Kreps et al. [1982], players rationally compute strategies based on (utility or payoff) type uncertainty. They cooperate from the beginning until near the end of the game, and then defect. This is not, however, the pattern observed in experiments, where it is common for cooperation to develop out of repeated interactions; also, defection near the end is often not observed.

The strength of the theory is that it is based on individual (but longer run) self-interest, and is parsimonious. …

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