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.
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.