For most of the problems that economists consider, the assumption that agents are self-interested works well enough, generating predictions that are broadly consistent with observation. In some significant cases, however, we find economic behavior that seems to be inconsistent with self-interest. In particular, we find that some public goods and some charitable ventures are financed by the independent voluntary contributions of many thousands of individuals. In Britain, for example, the lifeboat service is entirely financed by voluntary contributions. In all rich (...) countries, charitable appeals raise large amounts of money for famine relief in the Third World. The willingness of individuals to contribute to such projects is an economic fact that requires an explanation. (shrink)

The game theoretic notion of best-response reasoning is sometimes criticized when its application produces multiple solutions of games, some of which seem less compelling than others. The recent development of the theory of team reasoning addresses this by suggesting that interacting players in games may sometimes reason as members of a team – a group of individuals who act together in the attainment of some common goal. A number of properties have been suggested for team-reasoning decision-makers’ goals to satisfy, but (...) a few formal representations have been discussed. In this paper we suggest a possible representation of these goals based on the notion of mutual advantage. We propose a method for measuring extents of individual and mutual advantage to the interacting decision-makers, and define team interests as the attainment of outcomes associated with maximum mutual advantage in the games they play. (shrink)

Some behavioral economists argue that the honoring of social norms can be adequately modeled as the optimization of social utility functions in which the welfare of others appears as an explicit argument. This paper suggests that the large experimental claims made for social utility functions are premature at best, and that social norms are better studied as equilibrium selection devices that evolved for use in games that are seldom studied in economics laboratories.

In The Grammar of Society, first published in 2006, Cristina Bicchieri examines social norms, such as fairness, cooperation, and reciprocity, in an effort to understand their nature and dynamics, the expectations that they generate, and how they evolve and change. Drawing on several intellectual traditions and methods, including those of social psychology, experimental economics and evolutionary game theory, Bicchieri provides an integrated account of how social norms emerge, why and when we follow them, and the situations where we are most (...) likely to focus on relevant norms. Examining the existence and survival of inefficient norms, she demonstrates how norms evolve in ways that depend upon the psychological dispositions of the individual and how such dispositions may impair social efficiency. By contrast, she also shows how certain psychological propensities may naturally lead individuals to evolve fairness norms that closely resemble those we follow in most modern societies. (shrink)