Exchange, Cooperation, and Reciprocity Liang Jie Nov 4,2002

“ethics, morality, human conduct, and the human psyche are to be understood only if societies are seen as collections of individuals seeking their own self- interest.” R. D. Alexander The Biology of MoralSystems

“We are survival machines—robot vehicles blindly programmed to preserve the selfish molecules known as genes.…a predominant quality to be expected in a successful gene is ruthless selfishness. This gene selfishness will usually give rise to selfishness in individual behavior.…Let us try to teach generosity and altruism, because we are born selfish.” Richard Dawkins The Selfish Gene

The puzzle of cooperate Sociology Biology Economics Internalization of norms Population biology and Epidemiology Noncooperative game theory

An introduction to Social exchange theory Social Exchange Theory (SET) is based on the notion that people review and weigh their relationships in terms ofcosts and rewards. 1. Costs are those elements in the relationship that have negative value to a person(e.g., stress, time, energy, attention). 2. Rewards are those elements in the relationship that have positive value to a person(e.g., fun, loyalty, attention).

An introduction to Social exchange theory Social exchange theorists argue that all relationships require some time and effort on the part of the partiesinvolved.

An introduction to Social exchange theory A particular factor (e.g., attention) can be considered a reward at one point in the relationship and a cost at another point.

An introduction to Social exchange theory The formula that is used to “calculate” the overall value of a relationship subtracts the costs involved from the rewards provided. 1. Positive relationships are those whose worth is positive (i.e., rewards exceed costs). 2. Negative relationships are those whose worth is negative (i.e., costs exceed rewards).

An introduction to Social exchange theory According to SET, the worth of a relationship predicts its outcome. 1. Positive relationships are continued. 2. Negative relationships will likely be terminated.

Homans Five Propositions 1 Success Propositions For all actions taken by persons, the more often a particular action of a person is rewarded, the more likely the person is to perform that action.

Homans Five Propositions 2 Stimulus Propositions If in the past the occurrence of a particular stimulus, or set of stimuli has been the occasion on which a person's action has been rewarded, then the more similar the present stimuli are to the past ones, the more likely the person is to perform the action, or some similar action, now.

Homans Five Propositions 3 Value Propositions The more valuable to a person is the result of his action, the more likely he is to perform the action.

Homans Five Propositions 4 Deprivation-Satiation Propositions The more often in the recent past a person has received a particular reward, the less valuable any further unit of that reward becomes for him.

Homans Five Propositions 5 Aggression-Approval Propositions AWhen a person's action does not receive the reward he expected, or receives punishment he did not expect, he will be angry; he becomes more likely to perform aggressive behavior, and the results of such behavior become more valuable to him. BWhen a person's action receives reward he expected, especially a greater reward than he expected, or does not receive punishment he expected, he will be pleased; he becomes more likely to perform approving behavior, and the results of such behavior become more valuable to him.

Cultural Norms for exchange What happens when you received help?

Cultural Norms for exchange 1. Norm of Reciprocity People do not like to be in dept of others, this decreases our social esteem or self esteem. 2. Different Cultural Norms that determine Distribution Rules of the Exchange How much of the help you received do you return?

Motivation and Aim of gift exchange Motivation Altruism Egoism Strategical Fairness Survival Aim Making other happy Social approval Signaling Norms and reducing inequity Selection and evolution

Five points according to the evidence of experiments(Gintis,2002) First,the self-interested actor model is not supported in any society studied.

Five points according to the evidence of experiments Second, there is considerably more behavioral variability across groups than had been found in previous cross cultural research and the self-interested actor model fails in a wider variety of ways than in previous experiments.

Five points according to the evidence of experiments Third, group-level differences in economic organization and the degree of market integration explain a substantial portion (more than 60%) of the behavioral variation across societies: the higher the degree of market integration and the higher the payoffs to cooperation in production, the greater the level of cooperation in experimental games.

Five points according to the evidence of experiments Fourth, individual-level economic and demographic variables do not explain behavior either within or across groups.

Five points according to the evidence of experiments Fifth, behavior in the experiments is generally consistent with economic patterns of everyday life in these societies.

Matching Games with Behavioral Types Assumption : If f: Y → A,there is a strategy s ∈ S with s(y)= f(y)

1.Perfect Identification

Theorem

2.Gift Exchange and Imperfect Identification Assumption

Theorem

3.Informational Dominance

Theorem

Ultimatum game Design The experimenter pairs off two subjects (under varying degrees of anonymity), gives one (the ‘proposer’), an amount of money—say $10 or $100. The proposer is instructed to choose some portion of the money, at least $1, to offer to the second subject (the ‘respondent’). If the respondent accepts the offer, the money is shared according to the proposer’s offer. If the respondent rejects the offer, both proposer and respondent get nothing. The game is a oneshot (i.e., is not repeated).

Ultimatum game result If both proposer and respondent behaved like self- interested agents (or reciprocal altruists, which is the same thing in a one-shot situation), the proposer would offer the respondent $1 and the respondentwould accept. In fact, as many replications of this experiment have documented, under varying conditions and with varying amounts of money, proposers commonly offer the respondent substantial amounts, with one-half of the total often being the modal offer, and respondents frequently reject offers that are below one-third of the total.

Ultimatum game

Public good game Design Ten players are each given $10. Each player can contribute any portion of the $10 (anonymously) to a ‘common pool.’ The experimenter divides the amount in the common pool by two, and gives each player that much money. If all players cooperate, each puts $10 in the pool, the experimenter divides the $100 in the pool by two, and gives each player $50. By being selfish, however, each player can do better, since for every $1 a player puts in the common pool, the player receives only $0.50 back. By being selfish, a subject can earn $55 rather than $50. If all behave selfishly, however, each receives only $10.

Public good game Result Once again, the self-interested agent will contribute nothing to the common pool. In fact, experimental evidence shows that people contribute on average half their money to the pool. If the game is repeated several times, however (ten times is frequently used in experiments), in the later stages of the game, contributions decay until at the end, most subjects are contributing very little.

Public good game Result The decay is not due to subject learning, since Andreoni (1988) finds that when the same subjects are reassigned to groups and the game is repeated, the initial levels of cooperation are restored, but once again cooperation decays from the first to the final round.

Strong Prosociality People help strangers, make anonymous donations, and are abusive to inconsiderate automobile drivers whom they will never see again. Collective Action: People fight for freedom, democracy, women’s rights, racial justice, and the like, even when defecting is materially welfare-enhancing. Behavior in experimental games confirms everyday life in this respect.

Wage Rigidity, Rent-Sharing and Competition Workers' offers and mean contract wages in the double auction market with incomplete contracts

Workers' offers and mean contract wages in the double auction market with complete contracts

Peter Blau

Ernst Fehr

Samuel Bowles

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