Trust, Fairness, Reciprocity, and Altruism

Summary: Students participate in one or more fairness game experiments to learn if their own behavior is consistent with that predicted by the traditional homo economicus model or, instead, exhibits unconditional altruism, trust, fear, positive reciprocity, or negative reciprocity.

 

Motivation: The model of homo economicus  - or economic man – uses the simplifying assumption that an economic agent cares only about his or her own material payoff and is indifferent about the payoffs of others.  This model predicts well in many highly competitive environments in both everyday life and in experiments.  Experiments in which the homo economicus model predicts well include market experiments with double auction, posted offer, and one-sided auction markets.  But both everyday life and experiments tell us that the behavior of many people departs from that of homo economicus in many environments in which fairness is a salient concern.  Experiments in which behavior of many individuals departs from that of homo economicus include those with dictator, ultimatum, investment, moonlighting, wage-effort, trust, carrot, and stick games.  For example, some individuals risk losing money by adopting a trusting action that generates a profit for another person but leaves the decision to the other person about sharing or not sharing the profit. Another example: when offered an unequal split of an endowment by a first mover (who wants the larger share for himself) in an ultimatum game, some second movers exhibit negative reciprocity by rejecting the proposal even though this means that both individuals receive zero payoff.  Both examples, trust and negative reciprocity, are inconsistent with homo economicus  behavior but they are consistent with behavior for his more complicated cousin, homo reciprocans. 

 

Concepts Covered:

1. Unconditional altruism
2. Trust
3. Fear
4. Positive reciprocity
5. Negative reciprocity

Recommended Procedure: The recommended order is to first run the experiments on EconPort either in class (if computers are available) or out of class. Next, cover the lecture material on EconPort. Finally, use the graphical displays of data on EconPort to demonstrate that: (a) some individuals are unconditional altruists; (b) some individuals are trusting; and (c) some individuals are positively reciprocal.  If allocation of available class time permits, games included in this teaching module can also be used to demonstrate that: (d) some individuals are fearful; and (e) some individuals are negatively reciprocal.

 

Experiments

General Considerations

1. Although hypothetical payoffs can be used, better results are usually achieved by using salient payoffs in a medium valued by the students. These payoffs can be in cash or in extra credit points. Cash payoffs to a few randomly selected participants can be made from grant or college funds if available.  Cash payoffs to all participants can be made from funds provided by a student lab fee if this is admissible at your college. If extra credit points are used then it is recommended that any curve grading be done before extra credit is factored in (so as to avoid creating externalities in the experiment incentives).  An announced “exchange rate” can be applied to all payoffs if their parameterized level implies total payoffs to all participants that are too high or too low.
2. Several experiments should be run with different treatments to provide data to illustrate several features of homo reciprocans behavior.
3. Comparisons between treatments can be made “across subjects” if the sample size (number of participants) is not too small.  Comparisons between treatments can be made “within subjects” if possible treatment order effects are controlled for.

Parameterized Treatments

• Trust Experiment - A set of treatments that highlight aspects of trust, [... whatever else...]

• Mini-Ultimatum Experiment - A set of treatments that highlight aspects of [... fill in here ...]

 

References

James C. Cox, “How to Identify Trust and Reciprocity,” Games and Economic Behavior, 46(2), 2004, pgs. 260-281.

James C. Cox and Cary A. Deck, “On the Nature of Reciprocal Motives,” Economic Inquiry, 43(3), 2005, pgs. 623-635.

James C. Cox and Cary A. Deck, “When Are Women More Generous than Men?”, Economic Inquiry, 44 (6), 2006, pgs. 587-598.

James C. Cox and Cary A. Deck, “Assigning Intentions when Actions Are Unobservable: The Impact of Trembling in the Trust Game,” Southern Economic Journal, 73(2), 2006, pgs. 307-314.

James C. Cox, Daniel Friedman, and Steven Gjerstad, “A Tractable Model of Reciprocity and Fairness,” Games and Economic Behavior, 59, 2007, pgs. 17-45.

James C. Cox, Klarita Sadiraj and Vjollca Sadiraj, “Implications of Trust, Fear, and Reciprocity for Modeling Economic Behavior,” Experimental Economics, 11, 2008, 1-24.

James C. Cox, Klarita Sadiraj and Vjollca Sadiraj, “Revealed Altruism,” Econometrica, 76(1), 2008, 31-69.