All right, so this sort of, I guess one takeaway message from this is that there are strong social norms operating, interpersonal interactions.
Okay, and these social norms, relate to two basic elements of social capital. And those being trust and reciprocity. We tend to trust people, and we also have a tendency to reciprocate trust. Now in a two person exchange situation, individuals who move first usually incur some risk and yet strangers somehow arrive at cooperative outcomes. In interpersonal exchanges. Okay, so principles of fairness, trust, and reciprocity operate.
And this leads to this notion, again, you could ask why. Why does this happen? Why are these these social norms that indicate we should share, okay? Well, the principle of positive reciprocity, refers to a situations in which by sharing and reciprocating sharing. Leaves the benefit of both parties. Okay, so it goes back to what I said before, that again, sort of why we've avowed to cooperate is that we both, that societies and groups gain by cooperation and reciprocity. So in positive reciprocity, person A for example, takes a little bit of risk by trusting person B. Person B then gives up something in order to reciprocate A's trust. Okay, trust and reciprocity end up in mutual gain.
You can see this even more directly in another variation of the ultimatum game, and that's called the trust game. Economists and psychologists love these type of games, not only are they fun but they give us great insight into human behavior. And the trust game is sort of the same thing except, you're now introducing a third party into the ultimatum game. I changed the rules slightly.
The investor is given the money, $10 or $20 in my example here, okay? And then, the investor can give some of the money to the stranger or the trustee. Through the experimenter. Whatever money he gives to the experimenter, the experimenter will actually triple it and give it to the trustee, who then has the opportunity to share some of the gains back with the investor. So think about this for a second, the trustee in this case, becomes a dictator. In the dictator game, right? because they're given three times as much from the experimenter that the investor gave to the experimenter. Investor gives money to the experimenter, experimenter triples it, gives it to the trustee. Trustee then can share it back.
This game really sort of looks as the risk that the person A in this case, investor is willing to make. And how much the trustee reciprocates.
Think about this. Again, sort of a response experiment to yourself, what would you give up, if you're the investor, okay? What would you give if you're the trustee? How much would you give back? Again, so the rational thing you'd like to say, I'm not giving up anything because I'm not sure I'm getting anything back.
So as you're just giving $20 in this example here, the investor's given $20, he gives something up and gets triple then gives to the trustee, but there's no guarantee that anything's coming back. The rational thing maybe to do is I'm going to walk away here with $20. That's not what happens.
The investors usually give some of the money to the experimenter, who then triples it and gives it to the trustee, and now from the trustee's point of view, could argue that the rational thing to do is to keep everything. Again, that's not what happened. The trustees give something back.
My example here, the investor actually is given $20, gave away 14, he gets tripled to 42, $40 you give them to trustee. The trustee gives back, 19. So actually the investor's losing a dollar here. Okay. But at least it shows that people are giving, willing to take the risk. Now if this game was replicated, there's another trial. You can start thinking that the parties involved, the investor and the trustee, are going to base their behavior on what just happened. The investor was willing to gives, take a risk. In this case, gave $14 to the, that got tripled and given to the trustee. And didn't really get back that much. So you might think, okay, I'm going to change my behavior.
If parties know that this is an ongoing interaction,
rather than one shot deal, what you find is even greater cooperation. You'll find perhaps the investor will give part of the money, just to sort of test out and see what happens.
Dispense or triple it, give it to the trustee. The trustee then will share at a higher amount than in my example here with investor. Investor then has confidence in the trustee, increases the amount of money that gives to the experimenters which increases the yield and then increases what's coming back. That's how positive reciprocity works to an advantage of both. But it comes down to the one person willing to take a risk and the other person reciprocating that trust.
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