Social Cooperation and the Apparent Tension between Personal and Impersonal Exchange

Experimental research provides evidence for both agents as noncooperatively self-interested and cooperatively other-regarding. Drawing on the work of F.A. Hayek, Vernon Smith attempts to resolve this apparent tension by distinguishing between two spheres of human interaction. According to V. Smith, in the personal sphere individuals are psychologically hardwired for cooperation and in the impersonal sphere they are hardwired for noncooperative behavior. Building on the solution offered by V. Smith, this paper offers a rational choice approach to seemingly anomalous experimentally observed behavior. Using the Ricardian Law of Association, I reconstitute trust game decision trees to resolve the apparent tension in experimental results.

Read this article at the London School of Economics website.