EconPort - Reciprocity

There is a clear distinction between reciprocal behavior and other types of other-regarding behavior: Reciprocal behavior is a response to actions of others that were aimed towards oneself, i.e. it is conditional on some proceeding choice that affects the individual. The perception of such choice of action undertaken by the others can either be positive or negative. If the individual benefited from the outcome of the action, she can return the kindness and thus make the others better off. This is called positive reciprocity. On the other hand, if the actions undertaken by the others were perceived to be harmful, she can retaliate, thus being negatively reciprocal. Both positively and negatively reciprocal actions are very likely to be costly to oneself.

Positive Reciprocity Examples:

If a firm pays a higher wage to an employee, she is likely to reciprocate with exerting more effort.
People conserving more water during a draught when they believe that others are also conserving.

Negative Reciprocity Examples:

A consumer refusing to buy a product sold by a monopolist at an unfair price, even if foregoing the purchase is more harmful.
Acts of sabotage by a mistreated employee.
Members of a striking labor union being on strike longer than necessary in order to punish a firm for being unfair.

eBay example of reciprocal behavior

Consider the eBay example mentioned in the introduction to fairness section. Suppose the following transaction has taken place. The buyer who won the auction has paid for the item and the seller has shipped it to the buyer who has already received it. Furthermore, suppose the item was in excellent condition as described in the online auction. At this point the interaction of both market sides could easily cease. But since the buyer is very satisfied with the item purchased she may decide to provide positive feedback on the seller. Notice that this action is costly to the buyer, since it takes some time to provide feedback and there is no immediate reward for doing so. This act of kindness is beneficial to the seller since the other potential buyers can see this feedback and, therefore, will be more willing to buy from him in the future. The seller can return the favor and provide positive feedback on the buyer. Such an action could be considered as positive reciprocity because it is costly to the seller and is undertaken as a response to preceding behavior of the buyer.

Indirectly reciprocal behavior: A driving example (more advanced)

The following example comes from a J. Cox "Trust and Reciprocity: Implications of Game Triads and Social Contexts [2000]":

Consider a large city with heavy rush-hour traffic that produces frequent interactions between drivers in traffic lanes who own the right-of-way and other drivers that want to merge in. Each interaction between any two drivers can be considered as a one-time encounter, since the probability that they will meet again in such circumstances is essentially zero and thus it is not possible to develop a reputation. However, it is often observed that the driver who owns the right-of-way allows another driver to merge in from a parking lot or a driveway. Letting somebody in is time consuming because one has to delay his trip in order to do that. In response, most but not all the drivers wave, nod their heads or smile to show their gratitude. But this might not be the end of the chain of actions triggered by letting somebody into the traffic. In some cases, the driver who benefited from this act of kind of kindness might extend a similar courtesy to a third party, thus being indirectly positively reciprocal.

Literature definitions

According to Fehr and Gachter [2000, pp. 159] ?Reciprocity means that in response to friendly actions, people are frequently much nicer and much more cooperative than predicted by the self-interested model; conversely, in response to hostile actions they are frequently much more nasty and even brutal.?

Cox and Deck [2002, pp. 2] describe positive reciprocity as ''...a motivation to adopt a generous action that benefits someone else because that person's intentional behavior was perceived to be beneficial to oneself within the decision context of the experiment'' and negative reciprocity as "...a motivation to adopt a costly action that harms someone else because that person's intentional behavior was perceived to be harmful to oneself within the decision context of the experiment. Hence, in a given situation an action that would otherwise not be taken is considered reciprocal if it is undertaken in response to the action of another."

Notice, how the two described real-life examples, providing a feedback on eBay and letting another driver merge into rush-hour traffic after one has received a similar courtesy, fit the definitions. Returning the favor is not something the self-regarding model predicts, however it is often observed in everyday situations.

Examples of trusting and reciprocal behavior in an experimental setting

The concepts of trust and positive reciprocity in the moonlighting game are defined as follows. "Agent 1 undertakes an action that exhibits trust if the chosen action: ( a ) creates a monetary gain that could be shared with agent 2; and ( b ) exposes agent 1 to the risk of a loss of utility if agent 2 defects and appropriates too much of the monetary gain. Agent 2 undertakes an action that exhibits positive direct reciprocity if the chosen action: ( a ) follows a trusting action by agent 1; ( b ) gives agent 1 a monetary gain; and ( c ) is undertaken instead of an available alternative action that would produce outcomes preferred by agent 2 in the absence of the trusting action by agent 1."

Note that the above definition of observable positive reciprocity incorporates a possible dependence of the inferred preferences over outcomes on the process that generates those outcomes and attributions of the intentions of others. [Cox, Sadiraj, Sadiraj, 2002] The triadic experimental design described in the sections on the moonlighting game and dictator game makes it possible to discriminate between the implications of other-regarding preferences and trust, fear, or reciprocity.

Other examples of reciprocity in an experimental setting can be found in the following games: