nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2005‒07‒03
three papers chosen by
Matthew Baker
US Naval Academy, USA

  1. Neuroeconomic Foundations of Trust and Social Preferences By Ernst Fehr; Urs Fischbacher; University of Zurich
  2. The Economics of Altruistic Punishment and the Demise of Cooperation By Martijn Egas; Arno Riedl
  3. The Neuroeconomics of Mind Reading and Empathy By Tania Singer; Ernst Fehr

  1. By: Ernst Fehr (University of Zurich and IZA Bonn); Urs Fischbacher (University of Zurich); University of Zurich (University of Zurich)
    Abstract: This paper discusses recent neuroeconomic evidence related to other-regarding behaviors and the decision to trust in other people’s other-regarding behavior. This evidence supports the view that people derive nonpecuniary utility (i) from mutual cooperation in social dilemma (SD) games and (ii) from punishing unfair behavior. Thus, mutual cooperation and the punishment of free riders in SD games is not irrational, but better understood as rational behavior of people with corresponding social preferences. We also report the results of a recent study that examines the impact of the neuropeptide Oxytocin (OT) on trusting and trustworthy behavior in a sequential SD. Animal studies have identified Oxytocin as a hormone that induces prosocial approach behavior, suggesting that it may also affect prosocial behavior in humans. Indeed, the study shows that subjects given Oxytocin exhibit much more trusting behavior, suggesting that OT has a direct impact on certain aspects of subjects’ social preferences. Interestingly, however, although Oxytocin affects trusting behavior, it has no effect on subjects’ trustworthiness.
    Keywords: social preferences, foundations of trust, neuroeconomic
    JEL: A13 C90
    Date: 2005–06
  2. By: Martijn Egas (IBED, University of Amsterdam); Arno Riedl (CREED, University of Amsterdam, Tinbergen Institute and IZA Bonn)
    Abstract: Explaining the evolution and maintenance of cooperation among unrelated individuals is one of the fundamental problems in biology and the social sciences. Recent experimental evidence suggests that altruistic punishment is an important mechanism to maintain cooperation among humans. In this paper we explore the boundary conditions for altruistic punishment to maintain cooperation by systematically varying the cost and impact of punishment, using a subject pool which extends beyond the standard student population. We find that the economics of altruistic punishment lead to the demise of cooperation when punishment is relatively expensive and/or has low impact. Our results indicate that the 'decision to punish' comes from an amalgam of emotional response and cognitive costbenefit analysis. Additionally, earnings are lowest when punishment promotes cooperation, suggesting that the scope for altruistic punishment as a means to maintain cooperation is limited.
    Keywords: altruistic punishment, collective action, public goods, internet experiment
    JEL: C72 C91 C93 D70 H41
    Date: 2005–06
  3. By: Tania Singer (Functional Imaging Laboratory,University College London); Ernst Fehr (University of Zurich and IZA Bonn)
    Abstract: The most fundamental solution concepts in Game Theory - Nash equilibrium, backward induction, and iterated elimination of dominated strategies - are based on the assumption that people are capable of predicting others' actions. These concepts require people to be able to view the game from the other players’ perspectives, i.e. to understand others’ motives and beliefs. Economists still know little about what enables people to put themselves into others’ shoes and how this ability interacts with their own preferences and beliefs. Social neuroscience provides insights into the neural mechanism underlying our capacity to represent others' intentions, beliefs, and desires, referred to as "Theory of Mind" or "mentalizing", and the capacity to share the feelings of others, referred to as "empathy". We summarize the major findings about the neural basis of mentalizing and empathizing and discuss some implications for economics.
    Keywords: neuroeconomics, mind reading, empathy
    JEL: A10 C90
    Date: 2005–06

This nep-evo issue is ©2005 by Matthew Baker. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.