Social dilemmas among unequals

This is the author accepted manuscript. The final version is available from Nature Research via the DOI in this record.Direct reciprocity is a powerful mechanism for evolution of cooperation, based on repeated interactions. It requires that interacting individuals are sufficiently equal, such that everyone faces similar consequences when they cooperate or defect. Yet inequality is ubiquitous among humansand is generally considered to undermine cooperation and welfar. Most previous models of reciprocity neglect inequality. They assume that individuals are the same in all relevant aspects. Here we introduce a general framework to study direct reciprocity among unequals. Our model allows for multiple sources of inequality. Subjects can differ in their endowments, their productivities, and in how much they benefit from public goods. We find that extreme inequality prevents cooperation. But if subjects differ in productivity, some endowment inequality can be necessary for cooperation to prevail. Our mathematical predictions are supported by a behavioral experiment where we vary the subjects’ endowments and their productivities. We observe that overall welfare is maximized when the two sources of heterogeneity are aligned, such that more productive individuals receive higher endowments. In contrast, when endowments and productivities are misaligned, cooperation quickly breaks down. Our findings have implications for policy-makers concerned with equity, efficiency, and public goods provisioning.European Research Council Start GrantGraph GamesAustrian Science Fund (FWF)Office of Naval ResearchJohn Templeton FoundationISTFELLOW program

Revisiting consistency with random utility maximisation: theory and implications for practical work

While the paradigm of utility maximisation has formed the basis of the majority of applications in discrete choice modelling for over 40 years, its core assumptions have been questioned by work in both behavioural economics and mathematical psychology as well as more recently by developments in the RUM-oriented choice modelling community. This paper reviews the basic properties with a view to explaining the historical pre-eminence of utility maximisation and addresses the question of what departures from the paradigm may be necessary or wise in order to accommodate richer behavioural patterns. We find that many, though not all, of the behavioural traits discussed in the literature can be approximated sufficiently closely by a random utility framework, allowing analysts to retain the many advantages that such an approach possesses