Notes on Behavioral Economics 1 Strong Reciprocity and Human Sociality Human groups are highly social despite a low level of relatedness. There is an empirically identifiable form of prosocial behavior in humans, which I will call strong reciprocity, that in part explains human sociality. A strong reciprocator (a) is predisposed to cooperate with others; and (b) punishes non-cooperators even when this behavior cannot be justified in terms of extended kinship, reciprocal altruism, or what is the same thing, long term self interest. These notes will review evidence supporting strong reciprocity and other forms of prosocial behavior, including shame.
Notes on Behavioral Economics 2 The Ultimatum Game 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).
Notes on Behavioral Economics 3 The Ultimatum Game 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 respondent would 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.
Notes on Behavioral Economics 4 The Public Goods Game 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.
Notes on Behavioral Economics 5 The Public Goods Game 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. 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.
Notes on Behavioral Economics 6 Punishment The deterioration in cooperation occurs because contributors are retaliating against non-cooperators in the only way they possibly can by not contributing themselves. Support for this view is presented in Fehr and Gächter (AER, 2000), who allow players in a public goods game to retaliate directly against free-riders, at a cost to themselves. In this context, self-interested agents will always freeride, and will never punish other free-riders. Therefore the level of cooperation should be zero.
Notes on Behavioral Economics 7 Punishment Fehr and Gächter find that people do punish, and expecting this to happen, potential freeriders do not free-ride. The result is that when subjects remain in the same group for the ten repetitions (the partner treatment), cooperation begins as expected at about one half the total and over successive rounds rises to virtually complete cooperation. In the stranger and perfect stranger treatments, cooperation does not decline.
Notes on Behavioral Economics 8 Partners, Strangers and Perfect Strangers An experimental session consists of 5 to 10 groups, each with 4 to 10 subjects. In the partner treatment, subjects stay in the same group for 10 periods. In the stranger treatment, subjects are randomly reassigned after each ten period session. In the perfect stranger treatment, subjects are randomly reassigned, except no two subjects are in the same group more than once. In every case, this is common knowledge.
Notes on Behavioral Economics 9 Shame A rational self-interested agent will choose a level of prosociality that maximizes his welfare/fitness, taking into account the cost of being out of favor with the group. By shame I mean a tendency to weigh the costs of social disapproval more heavily than the rational self-interested level. Shame, if it exists, is prosocial because it leads people to overvalue their contributions to the group, and it lowers the cost of punishing malfeasance. There is some evidence that psychopaths (sociopaths) do not feel shame (or empathy). There is some evidence that this lack may be correlated with brain physiology.
Notes on Behavioral Economics 10 Shame, then, is like pain, which a fully rational agent would not experience. But how can we isolate and measure shame?
Notes on Behavioral Economics 11 Shame: Bowles, Gintis and Carpenter, 2001 174 subjects, four and eight-person public goods game, with m = 0.3 and m = 0.7, perfect stranger treatment. We replicated the results of Fehr and Gächter (2000). In addition, we found that 61% of subjects increase their contribution after being punished, while 13% do not respond to punishment, and 26% reduce their contribution after being punished. In 75% of the groups, it is payoff-maximizing to shirk, even taking account of the cost of being punished. Even the low contributors, who become more prosocial after being punished, are not payoff-maximizing. This is what we mean by shame.
Notes on Behavioral Economics 12 Experiments in Fifteen Small-scale Societies Joseph Henrich, Robert Boyd, Samuel Bowles, Colin Camerer Ernst Fehr, Herbert Gintis, and Richard McElreath, American Economic Review (May, 2001). The subjects were from fifteen hunter gatherer, nomadic herding and other smallscale societies exhibiting a wide variety of economic and cultural conditions. the enlightened self-interest model is not supported in any society studied. There is considerably more behavioral variability across groups than had been found in previous cross-cultural research and the self-interest model fails in a wider variety of ways than in previous experiments.
Notes on Behavioral Economics 13 Group-level differences in the structure of everyday social interactions explain a substantial portion of the behavioral variation across societies. The higher the degree of market integration and the higher the payoffs to cooperation in the production of their livelihood, the greater the level of cooperation in experimental games. Behavior in the experiments is generally consistent with economic patterns of everyday life in these societies.
Notes on Behavioral Economics 14 Strong Prosociality: Treat One-Shot, Anonymous Interactions as Repeated and Reputation-Building 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.
Notes on Behavioral Economics 15 An Evolutionary Explanation of Strong Prosociality? Anonymous, one-shot interactions in daily life in the EEA may have been rare events. However, cheater detection is present in even the simplest societies, and people everywhere know that they could get away with selfish behavior in experiments. The weakest conclusion is that strong prosociality may be an adaptation, and surely is not strongly selected against. We do not know why. Group selection for prosocial traits is one possible mechanism. Cultural evolution for prosociality, plus a Baldwin effect may be more plausible.
Notes on Behavioral Economics 16 Beyond the Classics R. D. Alexander, The Biology of Moral Systems: 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. Richard Dawkins, The Selfish Gene: 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.
Notes on Behavioral Economics 17 Born to Share Well, I like to think I m just as hard-nosed as the next guy. And likealexander and Dawkins, I love to épater les bourgeois. But, just as they stress in your 5-year-old s day care center, we are born to share.