The Demand for Punishment

Abstract

While many experiments demonstrate that the actual behavior is different than predicted behavior, they have not shown that economic reasoning is necessarily incorrect. Instead, these experiments illustrate that the problem with homo economicus is that his preferences have been mis-specified. Modeled with social preferences, agents who forgo material gains can often be called rational. The current experiment illustrates this point with an example. Assuming self-interested agents, punishment is not credible in social dilemmas, yet people are often willing to incur costs to punish free riders. Despite this seeming irrationality, we show that these same people react to changes in the price of punishing and income as if punishment was an ordinary and normal good.public good, social dilemma, experiment, punishment