Abstract. Experimentalists frequently claim that human subjects in the laboratory violate game-theoretic predictions. It is here argued that this claim is usually premature. The paper elaborates on this theme by way of raising some conceptual and methodological issues in connection with the very definition of a game and of players ’ preferences, in particular with respect to potential context dependence, interpersonal preference dependence, backward induction and incomplete information.

de/ls_schmidt/index.html

This paper provides evidence that free riders are heavily punished even if punishment is costly and does not provide any material benefits for the punisher. The more free riders negatively deviate from the group standard the more they are punished. As a consequence, the existence of an opportunity for costly punishment causes a large increase in cooperation levels because potential free riders face a credible threat. We show, in particular, that in the presence of a costly punishment opportunity almost complete cooperation can be achieved and maintained although, under the standard assumptions of rationality and selfishness, there should be no cooperation at all. We also show that free riding causes strong negative emotions among cooperators. The intensity of these emotions is the stronger the more the free riders deviate from the group standard. Our results provide, therefore, support for the hypothesis that emotions are guarantors of credible threats.

We present an agent-based computational economics (ACE) model of the wholesale "sh market in Marseille. Two of the stylized facts of that market are high loyalty of buyers to sellers, and persistent price dispersion, although it is every day the same population of sellers and buyers that meets in the same market hall. In our ACE model, sellers decide on quantities to supply, prices to ask, and how to treat loyal customers, while buyers decide which sellers to visit, and which prices to accept. Learning takes place through reinforcement. The model explains both stylized facts price dispersion and high loyalty. In a coevolutionary process, buyers learn to become loyal as sellers learn to o!er higher utility to loyal buyers, while these sellers, in turn, learn to o!er higher utility to loyal buyers as they happen to realize higher gross revenues from loyal buyers. The model also explains the e!ect of heterogeneity of the buyers. We analyze how this leads to subtle di!erences in the shopping patterns of the di!erent types of buyers, and how this is

This paper develops an approach to equilibrium selection in game theory based on studying the equilibriating process through which equilibrium is achieved. The differential equations derived from models of interactive learning typically have stationary states that are not isolated. Instead, Nash equilibria that specify the same behavior on the equilibrium path, but different out-of-equilibrium behavior, appear in connected components of stationary states. The stability properties of these components often depend critically on the perturbations to which the system is subjected. We argue that it is then important to incorporate such drift into the model. A su±cient condition is provided for drift to create stationary states with strong stability properties near a component of equilibria. This result is used to derive comparative static predictions concerning common questions raised in the literature on refinements of Nash equilibrium

This paper presents experimental results from an analysis of two similar games, the repeated ultimatum game and the repeated best-shot game. The experiment examines whether the amount and content of information given to players affects the evolution of play in the two games. In one experimental treatment, subjects in both games observe not only their own actions and payoffs, but also those of one randomly chosen pair of players in the just-completed round of play. In the other treatment, subjects in both games observe only their own actions and payoffs. We present evidence suggesting that observation of other players ' actions and payoffs may a ect the evolution of play relative to the case of no observation.

comments from several referees and seminar participants at many universities including Harvard, Cornell, New

Many thanks to Michael Shambare, for his tireless efforts in the field. Thank you also to Bill Kinsey, co-ordinator of the resettlement monitoring exercise in which all of the experimental subjects are involved. Finally, thank you to the participants of the MacArthur Foundation Conference on Cross-Cultural Experimental Economics, and the current and former members of the CSAE who offered insightful comments. All remaining errors are my own. In Zimbabwe, people in resettled villages trust each other less than people in nonresettled villages. This does not appear to be due to differences in socially transmitted rules of behaviour. Further, there are good reasons to believe that it is not due to the self-selection of a particular type of person into resettlement. Rather, the variations appear to be due simply to a lack of familiarity and to the consequentially greater uncertainty faced by resettled villagers when trying to predict each other’s behaviour in strategic situations

Recent experimental research has revealed forms of human behavior involving interaction among unrelated individuals that have proven difficult to explain in terms of kin or reciprocal altruism. One such trait, strong reciprocity is a predisposition to cooperate with others and to punish those who violate the norms of cooperation, at personal cost, even when it is implausible to expect that these costs will be repaid. We present evidence supporting strong reciprocity as a schema for predicting and understanding altruism in humans. We show that under conditions plausibly characteristic of the early stages of human evolution, a small number of strong reciprocators could invade a population of selfregarding types, and strong reciprocity is an evolutionary stable strategy. Although most of the evidence we report is based on behavioral experiments, the same behaviors are regularly described in everyday life, for example, in wage setting by firms, tax compliance, and cooperation in the protection

In the Ultimatum Game, two players are asked to split a prize. The first player, the proposer, makes an offer of how to split the prize. The second player, the responder, either accepts the offer, in which case the prize is split as agreed, or rejects it, in which case neither player receives anything. The rational strategy suggested by classical game theory is for the proposer to offer the smallest possible positive share and for the responder to accept. Humans do not play this way, however, and instead tend to offer 50 % of the prize and to reject offers below 20%. Here we study the Ultimatum Game in an evolutionary context and show that empathy can lead to the evolution of fairness. Empathy means that individuals make offers which they themselves would be prepared to accept.