A Theory of Reciprocity with Trust
People are reciprocal if they reward kind actions and punish unkind ones. I propose a new theory of intention-based reciprocity that addresses the question of when a mutually beneficial action is kind. When both benefit from the action, a player's motive is unclear: he may be perceived as kind for improving the other player's payoff, or as self-interested, and not-kind, for improving his own. I use trust as an intuitive mechanism to solve this ambiguity. Whenever a player puts himself in a vulnerable position by taking such an action, he can be perceived as kind. In contrast, if this action makes him better off than his alternative actions do, even if it is met by the most selfish response, he cannot be kind. My model explains why papers in the literature fail to find (much) positive reciprocity when players can reward and punish. In particular, I show how negative reciprocity crowds out positive reciprocity. By allowing for interactions between rewards and punishments, my model provides a theoretical framework to analyze institutional design and incentive structures when people are motivated by reciprocity.
The Benefits of Being Misinformed
In this paper, we show how two fundamental mistakes in information processing affect the welfare ranking of information experiments. In the spirit of Blackwell (1951), we analyze the binary ranking of informative action profiles under different classes of perception distortions. By themselves, an agent's tendency to misinterpret signals and the degree to which the prior deviates from the truth reduce expected utility in a model where payoff relevant actions also generate informative signals. However, experiments can be affected to different degrees. We provide necessary and sufficient conditions for when any binary ranking of action profiles can be reversed. As a consequence, different types of mistakes can interact in non-obvious ways such that an agent might be better off suffering from both rather than just one. We provide a characterization when such positive interaction is possible.
More Research in Progress
Costly Information and Control
with Rafael Hortala-Vallve, Aniol Llorente-Saguer and Valentino Larcinese
Sequential Reciprocity and Incomplete Information