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Camerer and Fehr: When does 'economic man' dominate social behavior

Disclaimer. Don't rely on these old notes in lieu of reading the literature, but they can jog your memory. As a grad student long ago, my peers and I collaborated to write and exchange summaries of political science research. I posted them to a wiki-style website. "Wikisum" is now dead but archived here. I cannot vouch for these notes' accuracy, nor can I even say who wrote them. If you have more recent summaries to add to this collection, send them my way I guess. Sorry for the ads; they cover the costs of keeping this online.

Camerer and Fehr. 2006. When does 'economic man' dominate social behavior?. Science 311 (January): 47-52.

Main Point

Individuals who violate the assumptions of economics (via altruism or bounded rationality) may create powerful economic incentives for Economic Man to change his behavior, but depending on the economic structure, the existence of Economic Man may also create strong incentives for those with bounded rationality or other-regarding preferences to behave like Economic Man (48).

Ultimatum Game: A Puzzle

Why do strong reciprocators make low offers as buyers in a competitive market, and why do they accept low offers as sellers? As the number of sellers goes up, the probability that there exists one self-regarding seller goes up as well. If there is one such seller, then the punishment mechanism of rejecting the buyer's offer by the seller is futile, since she will always be undercut. Therefore, self-regarding agents are inducing reciprocal agents to behave self-regardingly.

Some key terms:

When economic choices are substitutes, rational agents have an incentive to behave in the opposite way to that of less-rational agents. In these cases, aggregate behavior tends to follow the equilibrium model. When economic choices are complements, rational agents have an incentive to mimic the actions of less-rational agents. Here, the aggregate is pushed far from equilibrium, where small changes in initial conditions can have an inordinately great impact on outcomes.

In Sum

The population contains a mix of homo economicus and strong reciprocators (and individuals also mix these traits). When homo economicus mimics the strong reciprocator (as occurs under strategic complementarity), collective action occurs. When the reciprocator mimics homo economicus (as occurs under strategic substitution), you get a competitive marketplace.

You can make analagous arguments using bounded rationality (instead of a strong reciprocator).

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Tags

Camerer, Colin (author)Fehr, Ernst (author)Political SciencePolitical TheorySelf-InterestVotingTurnoutProsocial Behavior

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