Reciprocity, Exchange and Redistribution An experimental investigation inspired by Karl Polanyi’s

The Economy as Instituted Process

Draft Paper for presentation at ESA World Meeting 2007, LUISS

GIUSEPPE DANESE1

LUIGI MITTONE

CEEL - Computable and Experimental Economics Laboratory

Department of Economics

University of Trento

Via Inama, 5 38100 Trento Italy

www-ceel.economia.unitn.it

1 Corresponding author: gdanese@economia.unitn.it.

2

“Further significant advance in economic history requires

that we succeed in defining and explaining the different

allocation systems that have characterised economic

organisation in the past five millennia. It was Karl

Polanyi’s intuitive genius that he saw the issues”

(Douglass C. North, 1977: 715).

Introduction The experimental investigation presented in this paper was inspired by an intuition, a permeating

one in substantivist economic anthropology, that the institutional environment at large shapes individual

decisions. The paradigmatic proponent of such an approach was Karl Polanyi (1886-1964), whose

intuitions on three allocation modes in history form the theoretical substratum of our study.

The paper is organised as follows: section 1 surveys Polanyi’s writings on three allocation

systems, and illustrates the use we have done of Polanyi’s works for our experimental investigation. Our

intention is to reproduce in a laboratory setting two of the three forms of integration described by Polanyi,

reciprocity and market exchange, leaving aside for the moment the third, namely redistribution. We are

particularly interested in studying how the three sets of rules of the game bring the agents to the

attainment of a product-exhausting (efficient) outcome. We plan to do so by keeping all the relevant

features of the experimental design fixed across the two allocation systems, in order to make the results as

comparable as possible.

Section 2 discusses briefly the experimental literature on indirect reciprocity and introduces our

experimental design. Section 3 describes the results of a pilot experiment, of the baseline experiment, and

of two variants with respect to the baseline: the repeated game and the pre-play communication game.

Section 4 describes a market exchange game we used as a comparative tool with regard to the reciprocity

game. Preliminary final remarks follow.

1.1 The theoretical background: an introduction to Polanyi’s work The central contention of Karl Polanyi’s The Great Transformation (1944), as well as of later works

such as The Economy as Instituted Process (1957a), is that the market is an embedded form only of a

peculiar span of time. In other historical periods, oher forms of integration (or, to use the terminology of The

Great Transformation, “principles of behaviour”) have prevailed, with market trades playing only a minor

role. Such a great transformation has a clear birth place and time, i.e. England between 1750 and 1850, and

its decadence dates back to Europe and America between the 1930s and 1940s. The alleged decline of the

institutions of capitalism in the period between the two World Wars can be explained in Polanyi’s

interpretation as an example of failure of those institutional settings that are “disembedded” from the

institutions of society at large (Smelser and Swedberg, 2005: 13).

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Polanyi’s approach to allocation systems is markedly substantivist2, by this meaning that “man's

economy is, as a rule, submerged in his social relations” (Polanyi, 1968a: 63-64). He notices that Western

European history, until the end of feudalism, and with the exception of the last centuries, has seen economies

organised around principles that are far from self-interest: we refer to redistribution and reciprocity, or a

combination of these two systems with market exchanges (Polanyi et al., 1957a: 294)3. In order to ease the

comprehension of the meaning of the three circuits, suffice it to say that they are really shorthand notations

for the mechanisms of integration of the processes of production and circulation of material goods within the

larger society (Valensi and Godelier, 2003: 139)4. The qualifying elements of each circuit can be found in the

way in which factors of production are organised. For instance, so called “traditional societies” manage land

and labour under social laws of kinship. The great empires of Hammurabi in Babylonia, and the New

Kingdom of Egypt5, which “were centralised despotisms of a bureaucratic type”, on the other side, rested on

redistribution of land and (slave) labour (Polanyi et al., 1957a: 312).

It is in the behaviour of the Trobriand islanders, which Polanyi studied on Malinowski’s Argonauts

of the Western Pacific (1922), that Polanyi found the best instance of long-distance trades, concerning

several objects, requiring several years of circulation, and entirely based on the norm of reciprocity (Valensi

and Godelier, 2003: 131). We shall return to the peculiarities of the Trobriand economy later on in this essay.

We will not spend here many words on Polanyi’s criticism of the modern market economy, and on

his diametrically anti-catallactic approach to market trades. A necessary terminological distinction has

however to be drawn between trades and (market) exchanges, a distinction that makes sense only if we

enlarge the concept of trade beyond the narrow logic of markets. In this sense, in Polanyi’s works we find

three different types of trade: gift trade, administered trade, and market trade (Polanyi et al. 1957a: 262):

2 The fundamental point of disagreement between formalist and susbtantivist anthropology is the former theory’s emphasis on the cross-cultural applicability of the homo oeconomicus model. Substantivists, on the other side, focus on the institutional matrix in which individual choices occur (Isaac 2005: 19; Schneider, 1974: 9). 3 Together with reciprocity, redistribution and exchange, the Great Transformation describes also a fourth allocation system, the household economy (instances: manorial estates and subsistence smallholdings), whose description shares important features with Aristotle’s analysis of oikonomia. The interested reader is referred for further details to the essay Aristotle discovers the Economy (Polanyi, 1957b). Suffice it to say here that to a kind of trade economy, based on the exchange of equivalents, Aristotle opposed an household economy, whereby the aim is the self-sufficiency of the family. In this approach, prices are not necessarily the result of a bargaining process among similarly self-interested agents, but rather they should be able to preserve the community (koinonìa), and should be set relying on principles of “proportioned reciprocity” (antipeponthos), (Polanyi et. al 1957b: 104). In later works such as The Economy as Instituted Process this allocation system is essentially dropped, as it can be subsumed into an example of a redistribution system among members of groups of reduced dimension, under a regime of autarchy. 4 Compare in this regard a fundamental paragraph of the Great Transformation: “all economic systems known to us up to the end of feudalism in Western Europe were organised either on the principles of reciprocity or redistribution, or householding, or some combination of the three. These principles were institutionalised with the help of a social organisation which, inter alia, made use of the patterns of symmetry, centricity, and autarchy. In this framework, the orderly production and distribution of goods was secured through a great variety of individual motives disciplined by general principles of behaviour. Among these motives gain was not prominent” (Polanyi 1968b[1944], 19). 5 Polanyi points out in an Appendix to the Great Transformation (1944: APPENDIX 6) that reciprocity and redistribution are not merely a peculiarity of small subsistence economies. He contends that they are principles of economic organisation which apply also to affluent empires.

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“Gift trade links the partners in relationships of reciprocity, such as: guest friends, Kula partners, visiting parties. Over

millennia trade between empires was carried on as gift trade […]. The organisation of trade is usually ceremonial,

involving mutual presentation” (Polanyi et al. , 1957a: 262).

At a certain point of modern history, trade became linked with the market, upturning the historical tradition

which saw trades taking place mainly under gift-like trading arrangements, Polanyi contends. Formalist and

Marxian anthropologists, however, in interpreting the same sources Polanyi referred to, above all Bronislaw

Malinowski’s Argonauts of the Western Pacific (1922) and Richard Thurnwald’s Economics in Primitive

Communities (1932), highlighted that these tribal economies share important features with economic systems

of later stages of industrial capitalism: under this interpretation, formal calculation on the fit between means

and ends is common to all societies (Schneider, 1974). Polanyi strongly opposed this view, claiming that

looking for economising behaviour in traditional societies would mean misinterpreting their functioning. An

entirely different set of concepts is needed to interpret these economies: reciprocity and redistribution above

all, and the substantive meaning of the word “economy”, stressing satisfaction of both material wants and

social needs rather than formal microeconomic calculation based on the notion of scarcity (Dalton, 1990:

165; Polanyi, 1957a: 243).

One may wonder at this stage how an analysis based on formal economics concepts, such as

allocative efficiency, fits within a theory stressing the organic link between economy and the social matrix

economy is embedded in. Our attempt is to test two of the three allocation modes in a laboratory

environment, i.e. a locus with typically a-social features. In this environment, however, it is possible to

introduce such refinements, suggested by the anthropological theory itself, which can in theory favour

coordination levels among players. The formal economics concept we referred to above is allocative

efficiency. Throughout this essay, this is defined as the ratio of the sum of the actual gains of the players in

the game to the potentially attainable gains if optimal behaviours take place (Gode and Sunder, 1997). Or

attempt will be to show that while the market can function well even in the absence of forms of induced

socialisation, for gift-trade arrangements to work there needs to be in place forms of induced symmetry.

A noteworthy attempt to conduct a comparative institutional analysis based on instruments coming

out of Polanyi’s theoretical apparatus has been made by the Nobel Laureate Douglass C. North. After having

recognised that “Polanyi was correct in his major contention that the nineteenth century was a unique era in

which markets played a more important role than at any other time in history” (North, 1977: 706), he

proposes a choice of the different modes of integration based on the notion of transaction costs. In this

approach, “reciprocity societies can be considered as a least-cost trading solution where no system of

enforcing the terms of exchange between trading units exists” (1977: 713). In this sense, social norms

underpinning the triple obligation6 to make gifts, accept them and giving them back make such a system self-

enforcing and capable of supporting complex trades among subjects and communities (the reference is in

particular to Malinowski’s description of kula trade). Malinowski describes in his Argonauts (2004 [1921])

6 The key reference is to Mauss’ Essai sur le don (2002 [1924]).

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this complex ceremonial practice (in the opinion of Polanyi, one of the “most elaborate trading transactions

known to man”, 1968b [1944]: 12) which he observed in his journeys in the Trobriand islands, an

archipelago off the coast of Papua New Guinea7. In the interpretation given by Polanyi, the kula is centred on

the act of giving as valuable in itself, without the need of any formalistic reasoning: “Trobriand economy

[…] is organised as a continuous give-and-take, yet there is no possibility of setting up a balance, or of

employing a the concept of a fund. Reciprocity demands adequacy of response, not mathematical equality”

(Polanyi et al., 1957a: 273). North (1977: 712) notices, however, that later studies (Belshaw and Singh

Uberoi, quoted in North, 1977: 712) have underlined that in the Trobriand economy exchanges of gifts create

the conditions for exchange of other acts of duty and support, both material and nonmaterial. In this

interpretation, therefore, even the kula would be formalistic-reasoning driven.

Another critical remark North moves to Polanyi is that it does not imbue elements helping us to

predict changes in the mix of the three allocation systems in the economy over time. North suggests, in this

direction, that whenever a mode of allocation, or a certain mix of three modes, becomes transaction costs

economising, there will be pressures from the insiders for an institutional rearrangement (North 1977: 715).

Translating this insight in a laboratory setting, it would certainly be an interesting subject for future

experimental research to allow the players, once they have played the three games that reproduce the circuits,

or alternatively before playing them, to choose which mode of allocation they would prefer to be inserted in.

This inquiry would shed light, beyond the supply of constitutional arrangements8, arising mainly out of

historical conditions, on the demand for such arrangements coming from those who will be subject to it.

1.2 Three forms of integration: reciprocity, exchange and redistribution In a passage of The Economy as Instituted Process, Polanyi notices:

“Reciprocity denotes movements between correlative points of symmetrical groupings; redistribution designates

appropriational movements toward a center and out of it again; exchange refers here to vice-versa movements taking

place as between “hands” under a market system. Reciprocity, then, assumes for a background symmetrically arranged

groupings; redistribution is dependent upon the presence of some measure of centricity in the group; exchange in order to

produced integration requires a system of price-making markets” (Polanyi et al., 1957a: 250).

As it is known, reciprocity can be essentially of two types: direct, whenever the parties are involved in a

mutual presentation; indirect, whenever the original trusting act and the reciprocity obligation arising from it

do dot involve necessarily the same actors. The second type of reciprocity is typical of the Trobriand

economy: for example, the male’s responsibility is towards his sister’s family, but his sister’s husband is not

tied to any reciprocity obligation towards him. Rather, similar obligations exist for his own wife’s brother (if

he is married), who has to take care of him (Polanyi et al., 1957a: 253). Reciprocity, therefore, needs not be 7 The influence that such a practice has gained in the modern theory of reciprocity is great, to the point that Lévi-Strauss (cf. Introduction à l’œuvre de Marcel Mauss, 1950) claimed that the Melanesian people are the true authors of the modern theory of reciprocity. 8 The expression is borrowed from Douglass C. North (1977: 716).

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direct: rather, there can exist a motional process of generalised exchanges resting on the presence of

symmetrically organised groupings (Polanyi et al., 1957a: 253). The importance of indirect reciprocity for

modern societies has been underlined, among the others, by Toshio Yamagishi (2002: 17), when he claims

that “complex human societies would be impossible to maintain if humans relied solely on direct exchanges

between particular partners”. This is so because generalised reciprocity exempts the parties from costs

arising out of establishing a specific relationship. This explains our emphasis on indirect generalised

reciprocity9. In a system of indirect generalised reciprocity the parties contribute in the reasonable

expectation that “someone” (really, “anyone”) will do the same to him in the case he will play the role of the

weak part.

Generalised reciprocity has been observed in situations such as blood donations: in a fundamental

study on this phenomenon, Richard Titmuss (1970) reports that the most common answer to the question

(asked to volunteers) “why do you donate blood?”, was that “one day I might need blood myself”. This

explanation, which obviously makes no sense from a strictly economic point of view, as the blood I donate

today will not come back to me in the moment in which I may need it, is a clear example of a situation in

which economic agents appeal to generalised systems of gift-exchange (Hollis, 1998: 144-146).

Coming back to the core of our argument, Polanyi describes at length how reciprocity and

redistribution are supported by peculiar social norms, which have been well summarised by George Dalton

(Table 1). TABLE 1

TRANSACTIONAL MODE

RECIPROCITY REDISTRIBUTION EXCHANGE

UNDERLYING SOCIAL

RELATIONSHIP WHICH

IS EXPRESSED BY THE

TRANSACTION

Friendship, kinship, status,

hierarchy

Political or religious

affiliation

None

Source: Dalton (1968: xiv).

Market exchanges are different from the other transactional modes in that they are not expression of any

social obligation or principle: market exchange is in fact “disembedded” from the “social matrix” (Isaac,

2005: 14), for it is expression of a formalist logic. As North (1977: 707) notices, the market system

according to Polanyi was oriented to acquisition, differently from the other two transactional modes, based

on kinship, friendship, status or hierarchy (reciprocity) and political or religious affiliation (redistribution).

9 Studies coming from the field of psychology (such as Yamagishi’s) have underlined how membership in a “minimal” group (even if formed for trivial reasons, such as overestimating or underestimating the number of points in a picture), increases substantially the hope to receive favour from other members insofar as he grants favour to others. Yamagishi (2002) notices that: “people who are immersed in such a system will naturally develop the expectation of generalized reciprocity, the expectation of reciprocation not directly from the same person but from someone in the system” (bold in the original). Bringing this approach into our theoretical framework, we may state that it is belongingness to a group, i.e. a form of symmetry, which supports the possibility of generalized trades.

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Polanyi states clearly that the forms of integration he describes cannot be considered as projections

of personal attitudes at an aggregate level. With reference to reciprocity and redistribution, the presence of

well-identified social norms, respectively symmetry and centricity, are necessary in order to produce

integration. For example:

“reciprocity behaviour between individuals integrates the economy only if symmetrically organised structures, such

as symmetrical system of kinship groups, are given. But a kinship system never arises as the result of mere

reciprocating behaviour on the personal level. Similarly, in regard to redistribution. It presupposes the presence of

an allocative center in the community, yet the organisation and validation of such a center does not come about

merely as a consequence of frequent acts of sharing as between individuals. Finally, the same is true for the market

system. Acts of exchange on the personal level produce prices only if they occur under a system of price-making

markets, an institutional setup which is nowhere created by mere random acts of exchange” (Polanyi et al., 1957a:

251).

Polanyi predicted that only in symmetrically organised groupings will reciprocative behaviour result in

economic institutions of some historical and anthropological importance. Similarly, only where an

allocation system organised around some authority-holder exists, we will observe a redistributive

economy (Polanyi et al., 1957a: 252). In short, “he societal effects of individual behaviour depend on the

presence of definite institutional conditions; these conditions do not for that reason result from the

personal behaviour in question” (Polanyi et al., 1957a: 251).

After this brief introduction to Polanyi’s works, we come now to the experimental part of our

paper. We would like to remark that the experimenter, in devising how to replicate in a laboratory the

Polanyian circuits, faces a great challenge: an allocative-efficiency analysis like the one we conducted

does not focus on the compatibility of the circuit with social norms and structures permeating “society”.

More modestly, our attempt is to give a contribution to the theory of comparative institutional analysis,

using as a starting point the three forms of integration described by Polanyi.

2. Reciprocity: the experimental literature The game we devised for the reciprocity-part of our study shares important features with both the

Investment Game10 (Berg et al., 1995) and the Centipede Game11 (Rosenthal, 1981; McKelvey and

10 This successful game was replicated with a number of refinements with respect to the original version, usually using couples of players, where direct reciprocity is observable. For a survey of the literature on this game, cf. Dickhaut and Rustichini (2001). 11 In the centipede game, originally played with two players only, the players get alternatively access to a larger share of a continuously increasing pile of resources. The game theoretic solution, found by backward induction, is that the game should end immediately in the fear of opportunistic behaviour at later stages. However, experimental studies on this game give us very different results: in a six-move centipede game, McKelvey and Palfrey (1992) report that only in 37 of 662 games the players choose to close the game immediately. 23 games arrive at the end of the centipede. The remaining games lie in between these two extremes.

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Palfrey, 1992), and has been studied in similar forms by Greiner and Levati (2003). In Greiner and Levati,

player i is aware of the choices of player i-1, but is unaware of the past histories of reciprocity of the

players before i-1, and is symmetrically unaware of the future developments of the game. Accordingly,

the Investment Game devised by Berg et al. (1995) is rearranged within a ring of n players. Each player i

can receive an investment from an player i-1, and is free to choose the points to send ahead to i+1. The

last player is free to choose how much to return to player 1, a choice which ends the game. At each

passage of points from one player to the other, the amount is multiplied by three, which renders

cooperation beneficial.

The hypothesis that the authors want to test is whether players tend to become nicer to others if

third parties were nice to them (p. 3). The authors test their results for group size by comparing 3- and 6-

person rings. They repeated the game with the same players for a finite number of times, varying the

rematching procedure. They test in particular a partners condition (whereby it is the same group that

interacts ten times) and a strangers condition (where groups are randomly made after each round). They

find in their experiments that the average amount sent is positive for both partners and strangers. The

average amount sent is however significantly higher for partners. From this, the authors conclude that

strategic reputation-building plays indeed a role in an indirect-reciprocity game. Furthermore, the 3-

person groups tend to have higher average consignments than those observed in 6-person groups. Such

result is consistent with the argument by Boyd and Richerson (1989) that indirect reciprocity is likely to

be effective in the case of small, close and frequently meeting peers of a group.

In Greiner and Levati’s paper, each player was endowed with an equal amount of points e. The

final payoff was thus calculated:

11 3 −+ +−= iii xxeU

The payoff is therefore negatively affected by the amount the player sends to the next participant, and

positively by the amount the player receives from the preceding one, multiplied by three by the

experimenter. It is evident that the game theoretic prediction is that everyone will exit the room with his

initial fee, with gifts being equal to 0 for all players. On the other side, it would be Pareto-improving for

everyone to send the whole endowment, allowing thus each player to earn a final payoff of 3e. given an

endowment of five points, partners in 3-person groups send on average 3.68 (3.35) ECU in the first

(second) 10-period phase of the simultaneously-played game and 3.62 (3.61) ECU in the first (second)

phase of the sequentially played game. The respective averages for groups of partners of 6 players are

2.12 (1.98) and 2.46 (2.00). About the strangers, they sent on average 2.87 (2.65) in the first (second)

phase of the simultaneously played game, and 2.32 (2.38) in the fist (second) phase of the sequentially

played game. It should be noticed that groups composed of 6 people played only the partners-game.

Indirectly reciprocal behaviour is therefore observable in a laboratory. It is interesting to notice that

partners invest more than strangers, and groups of size 3 invest more than groups of size 6. In the

debriefing conducted by the authors on the experimental subjects, in order to inquire into the strategies

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they used, the most common answer was that they sent as a gift an amount equal to the gift they had

received, a strategy that, following Boyd and Richerson (1989), the authors call “indirect tit-for-tat”.

In the paper by Greiner and Levati, the authors created a full homogeneity of the initial condition,

assigning the same endowment to all players. As we shall see, our game differs in this regard from

Greiner and Levati’s, as only the first player is endowed with a small amount of points, which gets

multiplied as the points pass from one subject to the other. In our experiment, moreover, we kept low the

initial amount of points available to player number 1, and made it profitable for the first player(s) to

“trust”, for the amount they could earn in the case in which trust prevailed consistently was enormously

greater than the payoff they would have earned, had they withheld the initial endowment (16 or 28 cents).

Because of the way the game was structured, the first player had to trust eight players (the tenth was just a

dummy player). In the case in which all players sent everything, her final payoff would have been more

than 50 times the initial amount she had available. For the first player, the decision to trust is therefore

both risky and profitable. The event that the first player sends a substantial amount of points to player

number 2, who takes a similar decision vis-à-vis player number 3, is therefore crucially linked to her

estimation of the probability of generalised exchanges to take place after him:

“a donor provides help if the recipient is likely to help others (which often means, if the recipient has helped others

in the past). In this case, it pays to advertise cooperation, as the cost of an altruistic act is offset by an increased

chance to become the recipient of an altruistic act later” (Nowak and Sigmund, 1998: 573).

In a similar way, the following players had to trust the decisions of a progressively reduced number of

decision-makers, but also the ratio of sure payoff to potentially attainable one decreased.

Our initial hypothesis is that, in the absence of forms of induced symmetry, the game being

played among ten anonymous players reaches very low levels of allocative efficiency. In other words, if

the experimental design is perceived in the appropriate way by the players, that is as a game of gift-trades,

then we should observe high levels of allocative efficiency. This, however, will require definite

institutional refinements.

The structure of the game implies in fact that player nine will have a strong temptation to behave

opportunistically, given that she has a very relevant amount of points if all previous players have sent all

the amount they had available. This peculiarity of the game is likely to have discouraged the first players,

given that, anticipating a bit, in our (baseline) experiment player number nine has never received from all

the preceding players more than 344 points (3.44 euros), with the median being a discouraging amount of

2 points available to player number 9. In this sense it seems that Boyd and Richerson’s prediction that the

conditions for the evolution of indirect reciprocity become tighter as the group size increases, is very

robust.

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3. The experimental design 3.1 PILOT EXPERIMENT

We tested a modified version of the game studied by Greiner and Levati in a pilot experiment we

run in December, 2006. We formed randomly six cohorts of ten players, who voluntarily accepted to take

part in the experiment after a public announcement. The subjects were all University of Trento students.

The experiment took place at the Computable and Experimental Economics Laboratory (CEEL) of the

University of Trento, and was entirely computer-based. After the reading of the instructions (reported in

Appendix 1), the game started with a simple question meant to ascertain whether the essential feature of

the game was clear (“if you have 10 points, and you decide to send 5 to next player, how much will she

have available?”12). Questions by the participants regarding general aspects of the game were answered

publicly. The game works as follows: the first player was endowed with a very small amount of points

(16 euro cents in Treatment 1, and 28 in Treatment 213). The number of players and the constant

multiplier were common knowledge. The players were not informed of the amount of points available to

any player apart from themselves. The order of play was random and all the choices anonymous. The first

player could decide how much to keep for himself of the available sum and how much to send to a

generic “next player”. The amount sent was multiplied by 2 by the experimenter. Player number 2 took a

similar decision, with the multiplication of points taking place at each gift-decision of the players. In our

experiment, player 10 is only a dummy player, for the amount that reaches him is divided among all the

group-members in equal shares. The final payoff of the players was calculated as the simple sum of the

points they decided to withhold, and of the points that reached player number 10, divided by 10. At the

end of the experiment, the points gained were converted into euros, with one experimental point being

equivalent to one eurocent.

Figure 2 illustrates a reduced version of this sequential game, with the only choices being “send

the whole endowment” or “withhold the whole endowment”.

12 Ortmann et al. (2000) used questions such as “how much money do you think you will send?”, “how much will your room B counterpart receive if you send this much?” in order to prompt strategic reasoning by the players. We used, however, our question only to check whether all players had understood the fundamental feature of the game, i.e. the multiplier effect. 13 All subjects were paid a show up-fee of 2 euros.

11

FIGURE 1

TREE-REPRESENTATION OF THE PILOT EXPERIMENT

In the tree, x is the amount available to player 1, neb 6931.05.0= , and =n the decisional node of the

game, which is equal to ten in the case in which the game arrives at the redistributive stage. Given that

xexe )5.0(10

)5.0( 9*6931.010*6931.0

> , player 9 will have an incentive at defecting before the last round. This

determines that the sub-game perfect equilibrium is to send zero at round 1, with player 1 gaining x, and

all other players zero.

In the pilot experiment players were subject to harsh information conditions, as they did not know

how much previous players had available. The only figure they could calculate is the amount that the

previous player had decided to send him. In this pilot experiment we tried to limit the possibility of player

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number 9 to behave opportunistically in the case in which all players sent everything, by limiting the

maximum amount payable to 25 euros.

Although our game tries to mimic experimentally a kula-trade type of arrangement, we have

introduced the important difference that in our game the pile of point up for distribution to all players

increases with the number of gift decisions being taken, a feature that is external to the Trobriandese

economy described by Malinowski, based on a continuous give and take with the local neighbour. Why

did we introduce this feature, and what does our circuit resemble to? We did introduce this variant in

order to study trust in a group in which players have to trust a certain number of players in order to reach

a considerable payoff. This is in fact unobservable in the case of local interactions. Generally speaking,

our game shares some features with a generic productive circuit in which the value of the commodity

increases with the number of people who have taken a decision regarding it. At the end of the process, all

participants typically share profits.

The results of the pilot experiment confirm in two cases (Group 1 and 2, Tr. 1) the game theoretic

prediction that player one will not send anything. In group 5 (Tr. 2), the game stopped at the second

round. Group 3 (tr. 1) and 4 (Tr. 2) stopped at round number 5. Finally, Group 6 (Tr. 2) was the only one

in which all players took a decision, but with an insignificant redistribution of 8 points. Two features of

our game in particular seem to have produced undesired confounds. First, ignorance about the amount of

points previous players had available led players to close the game (by sending zero), as they likely

thought that in previous rounds players had large sums available and had decided to send very little. As a

matter of fact, however, the first players had a very limited amount of points. Undesirable spiteful

behaviour seems therefore to have set in in those sessions that have gone beyond stage 1 of the game.

Secondly, there seems to be a computational failure on the side of the players in understanding the

multiplier dynamics (i.e. that each could gain 10

)(29 xpoints, in the case everyone sent everything, with x

being the initial amount of points).

With regard to the first point, we believe that information plays a central role for the viability of a system

of gift-trades, such as Malinowski’s kula. We can imagine that, in order to be effective, a gift-trade

arrangement requires a minimum level of shared informational basis among the trading partners. Without

this, the participants do not perceive the experimental setting as a situation where some form of indirect

reciprocity could take place, because they ignore the relative positioning of the other participants, in terms of

endowment of points. The case that the players imagined that strong inequalities existed in the players’

endowments (and, consequently, in the final payoffs) has presumably prevented them from contributing at

all. Through a series of amendments to the rules of the game we have tried to take these issues into account.

13

3.2. THE BASELINE EXPERIMENT

In our baseline experiment, the subjects14 (eight cohorts of ten players each) played a game that functioned in

all regards in the same fashion as our pilot experiment, with the following changes:

- payable-amount thresholds were removed;

- in the instructions15, players were informed of the amount of points they could have gained in the case in

which all players sent all the points they had available (about 800 points for Treatment 1, and 1,400 points

for Treatment 2). Confronted with the challenge of easing a computational failure, we have preferred to

make the information available, rather than risking that some players did not acquire this crucial datum.

- the first player had to send something: the instructions informed the players that “the first player opens the

game, and therefore she has to send an amount greater than zero to player 2”. By this, we tried to promote

the willingness of the first player, who has no history to refer to, to send points.

- the players could no longer send zero. More precisely, the amount that could be sent (g), denoting with A

the available stock of points, was defined as follows:

],...,1[ Ag ∈

Still, the players could choose to adopt a smallest-granularity consignment decision, i.e. sending 1 point

only.

- a further, distinct option was given to players number 2 to 9 (player 10 as usual did not have any choice to

make): such players could decide to end the experiment. In the case of closure, the amount that the player has

available is divided in equal shares between himself and all the previous players, with the remaining players

gaining zero;

- finally, the players saw on the screen, when they had to make their decision, the amount of points that on

average the previous players had available. The player number 2 saw exactly the amount of points that

player 1 had available.

The new set of rules changed the Nash equilibrium of the game. It is no more possible to send zero,

and closing is unappealing for all players but player 2 who, in the case he has the smallest possible

endowment (2 points), would be indifferent between closing the game and sending 1 point to the third player.

For all other players, it is optimal to keep all the amount available and send one point ahead16 to next player.

This was a necessary refinement in order to observe the choices of all players, preventing the unsatisfying

contingency in which a player closes the game at the very beginning, without the possibility to observe how

the other players would have behaved in their turn.

14 Subjects who took part in the December sessions were not allowed to participate in this new experiment. No player has played any of our reciprocity experiment sessions twice. 15 The instructions for the baseline experiment can be found in Appendix 2. 16 This is in fact the smallest granularity that it is possible to send.

14

3.2.1 EXPERIMENTAL RESULTS

With the exception of one session (with Tr. 1), the game arrived always at the end. The points cumulated are

still very low. Fig. 2 shows the average gift-decisions in Treatment 1 and Treatment 2 (4 sessions each). FIGURE 2

BASELINE EXPERIMENT: AVERAGE GIFT DECISIONS (ABSOLUTE FIGURES)

(PLAYER 1 TO 9)

05

101520253035404550

0 1 2 3 4 5 6 7 8 9

order of play

poin

ts s

ent t

o ne

xt p

laye

r

TR 1TR 2

Figure 3 shows the gift-decisions as a percentage of the sum players had available.

FIGURE 3

BASELINE EXPERIMENT: AVERAGE GIFT DECISIONS (AS PERCENTAGE OF AVAILABLE SUM)

0102030405060708090

100

1 2 3 4 5 6 7 8 9

order of play

% o

f av.

sum

sen

t

TR 1TR2

The graphs show that only in tr. 2 sessions there has been a timid attempt to send ahead a consistent amount

of points, both in absolute and relative terms (i.e., as a percentage of available sum). Gift-decisions, however,

tend to be strongly cyclical: decisions to send a consistent share of the available sum are followed by

15

decisions to withhold most of the amount available, and the reverse. The only players who have managed to

earn a higher payoff are subjects in tr. 2 who played as the last two active players (Figure 4). FIGURE 4

BASELINE EXPERIMENT: THE PAYOFFS (BY POSITION WITHIN THE GAME)

0

10

20

30

40

50

60

70

1 2 3 4 5 6 7 8 9 10

order of play

payo

ff ea

rned

TR. 1TR. 2

The amounts earned are, however, still very low, given the exchange rate of 1 experimental point for one

eurocent. As a matter of fact redistribution has been mostly inconsistent: the maximum amount of points that

reached player number 10 was 288. This has determined the very low allocative efficiency of the baseline

experiment: 0.48 % on average for tr. 1, and 1.7% for Tr. 2.

A series of considerations can now be made. First of all, our treatment 2 condition raised sensibly the

average consignment as a percentage of the available sum (44.56% versus 59.79%). The average consignment

decisions explain clearly why the final allocative efficiency level of the circuit was so low. Figure 5 shows

the correlation between the amount of points each player receives, and her gift decision

16

FIGURE 5

CORRELATION BETWEEN AMOUNT RECEIVED (X) AND AMOUNT SENT (Y)

y = 0,4835x + 1,3758R2 = 0,6723

020

4060

80100

120140

160180

200

0 100 200 300 400

amount received

amou

nt s

ent

A linear regression captures therefore in a satisfactory way the relation between the two parameters, showing

that there is indeed a correlation between endowment and gift-decisions (absolute figures).

About the strategies of the players, if we label with x the gift of player 1−n (which becomes 2 x for

player n), and with y the gift of player n to player 1+n (who will have y2 available), then three cases are

given:

- xy > : we label this case as “kindness”;

- xy < : “unkindness”;

- xy = : “indirect tit for tat (ITFT)”.

The indirect tit for tat emerged as one of the favourite strategies followed by the players in Greiner and

Levati’s experiments. It is then interesting to verify the diffusion of such a strategy in our baseline

experiment. Table 3 reports the frequency of the three strategies described supra. The inquiry on the

strategies followed by the players is interesting only for players who played round 2 to 9, given that player

10 was a dummy and player 1 did not have a previous player’s decision he could use as reference. The

sample size is therefore made of 8 players per each session (save 1 session where player number 9 closed the

game, and was thus excluded).

TABLE 2

STRATEGIES ADOPTED BY THE PLAYERS (2 TO 9)

TR. 1 TR. 2 Kindness 12.9 46.8 Unkindness 35.4 40.6 ITFT 51.6 12.5

17

The low efficiency levels of the circuit, and the different allocative efficiency across the two treatments, can

also be explained through the number of people who play ITFT and Unkindness strategies. The kindness

strategy is in fact efficiency-promoting, with the Pareto-optimum being reached in the case of generalised

use of this strategy, i.e. when all players send the whole amount available. Pareto optimality is instead

threatened by the unkindness strategy, and by the indirect tit for tat strategy. The high frequencies of the

ITFT and of the Unkindness strategies, which we have shown in table 2, are therefore in themselves a signal

of the low efficiency levels reached in our baseline experiment.

3.2.2. ANALYSIS OF THE ANSWERS TO THE DEBRIEFING SURVEY

At the end of the experiment, but before being informed of their payoffs, the subjects were asked to

answer a debriefing17, which allows us better to understand the players’ approach to the decision-problem

and the motivations that guide their behaviour in similar circumstances. In our analysis, we took into account

only the answers to the debriefing of the players who made a choice, i.e. from round 1 to 9, excluding also

the only one player who closed a game. As we did not discriminate for the analysis of the debriefing

according to the treatment the players were exposed to, the sample-size is made of 71 subjects. The first

question asked whether the players expected to receive back more or less than the amount they sent: 66% of

the subjects (across the two treatments) gave a positive answer. This shows clearly their reliance on the

others’ consignment decisions. The second question tried to elicit the players’ conception of a fair decision,

by asking them what was the fair share they deemed they should send to the next player. The median here is

50%, with a mean value of approximately 59%. Players’ perception of fairness dictates hence that about half

of the available sum should be sent to the next player, against the Pareto-efficient choice of sending the

whole amount available.

Furthermore, we thought it useful to check whether this fair share that the players indicated at the

end of the game was consistent with the choices that the players made during the game. We compared to this

end the percentage of the available sum that the players sent, and their answer to question number 2 of the

debriefing. Using a ± 10% interval, 58% of the players passed the coherency test. Using a 20% interval, the

figure rises to 72%. The majority of the players seems therefore to have followed a “fair share” rule, which

they coherently expressed in the debriefing question meant to catch this aspect. The third question asked the

subjects to imagine being the first player, and then asked them whether their choice of how many points to

withhold would have changed were they the ninth player in lieu of the first: 68% of the subjects gave a

positive answer to the question. Players thus understood correctly that the way the game was structured

implied that player 9’s trust-decision was more demanding than the first player’s, an expectancy that has

likely discouraged all players to send points, if they foresaw an opportunistic behaviour at stage 9. The fourth

and fifth questions were meant to understand the behaviour of the players in real life situations of gift-

exchange, trying to understand which kind of reciprocity describes best their behaviour. Question number 4

asked the players to choose the statement that best described them, the possibilities being the following:

17 A translation of the whole debriefing survey can be found in Appendix 3.

18

1. when I give a present to an acquaintance, I expect to receive a present back in a short amount of time;

2. when I give a present, I give it regardless of the possibility to receive one back;

3. usually I do not give presents.

The great majority of the players chose statement 2 (89%), with a minority choosing option 1 (7%), and only

3 subjects (4%) stating their unwillingness to give presents. Similarly, question number 5 asked the players

to choose the statement that most fitted them, using in this case Bruni’s (2006) taxonomy of “reciprocities”.

We report in table 3 the possible answers we provided players with, and their correspondent in Bruni’s work. TABLE 3

DEBRIEFING QUESTION NUMBER 5

1. “cautitious reciprocity (C)”: I am ready to give a present if an acquaintance gives me one. But I would not

make the first step (I wait for a gift of the other).

2. "philìa-reciprocity (B)”: I am ready to give a present if an acquaintance gives me one. I am ready to give

the present first.

3. “gratuitous reciprocity (G)”: I give presents unconditionally, regardless of the behaviour of the person I

give the present to.

3. “defectors (N)”: I do not give presents, even in the case I receive one.

No player chose the unconditionality option G, and only 1 choice option N. The great majority of the

players (94.4%) chose the strategy that professor Bruni has labelled philìa-reciprocity, typically associated to

the Tit-for-Tat: reciprocate the choices of the other, and “make the first (cooperative) step” in the case in

which you move first. Players state therefore that in normal life situations they would be willing to cooperate

first, partially in contrast to their behaviour in the experimental setting.

3.2.3 DISCUSSION OF RESULTS

One possible criticism that could be moved to us is that a multiplier of 2 was not large enough to

prompt trust in the players. In this sense, a larger multiplier would have probably promoted the willingness to

send points: this is suggested in Van Huyck et al. (1995), where the authors used a game not dissimilar from

Berg’s investment game, with the result that the investors’ willingness to trust increases as the multiplier

becomes larger. Secondly, the results may be due to the paucity of the initial points player 1 had available,

though it seems quite unlikely that larger sums would have prompted trust if trust failed when so little was at

stake at the initial stages. Thirdly, and more interestingly, it may be that our reciprocity game lacked the

Polanyian attributes of symmetry. Or, in other words, that our laboratory environment favoured a game

theoretic approach to the problem, that did not favour the diffusion of trust. As we shall soon see, we have

made a (rather conservative) attempt in this sense by allowing players to communicate before playing the

game. we would like to remark, however, that different solutions, such as introducing the consumption of

19

relational goods, or an ad hoc choice of participants to the experiment (such as volunteers of a not-for-profit

organisation), are devisable too, in order to obviate to some difficulties posed by the laboratory-environment.

We turn now to the analysis of two variants of the baseline experiment.

3.3 VARIANT 1: THE REPEATED GAME

The first possibility we explored was to let the same players play the game for three times. We conducted

four sessions, each with a cohort of ten players18. The instructions sheet, reported in Appendix 4, was in all

regards analogous to the one of the baseline experiment. The subjects were informed that they were going to

play the game for three times, and that the order was random in each round. They were also instructed that

they would be informed of their payoff after each of the rounds. As in the baseline experiment, they were

also informed of the potential gains if all the players sent all the sum available (about 500 points per round,

given that the first player was always given an initial endowment of 10 points).

The standard prediction that game theory associates to repeated games is that equilibria that would not be

reachable in a one-shot game become so if the players do not discount their future earnings too much. This is

the widely known folk theorem of repeated games (Fudenberg and Maskin, 1986). Our treatment, however,

has deprived players of the crucial possibility to build a strategic reputation, by making the order of play

random in each round of the game. As a matter of fact, our aim was not to observe the evolution of the

decisions of any single player in the course of the three sessions. Rather, we tried to check whether learning

about the results in one round favoured or disfavoured the willingness to send points in the next stage. Apart

from some timid attempt to send points in the first round, the games have never gone beyond a gift of 25

points in the last two rounds. In one session, player number 3 closed the game in the first round. In another

session, player number 9 at round 3 did the same. It seems therefore that learning about players’

unwillingness to send points in the first round has further discouraged players, given that the median gift in

the first round was 21 and in the last two rounds was respectively of 7 and 8 points. Figure 6 represents the

evolution of the absolute gift-decisions (mean figures) of the players across the four repeated game sessions.

As player number 10 is excluded, order of play number 10 and 19 indicate respectively the first players’

decisions in rounds number 2 and 3.

18 All the players were neophytes who had not taken part in any of the previous experiments we conducted.

20

FIGURE 6

REPEATED GAME: AVERAGE GIFT DECISIONS (ABSOLUTE FIGURES)

(PLAYER 1 TO 9)

0

50

100

150

200

250

1 10 19

Order of play

Poin

ts s

ent t

o ne

xt p

laye

r

RG sessions

Overall, the mean allocative efficiency of the repeated game is 4.53%, with a median of 0.78%, due the

presence of one outlier session. This constitutes an indubious improvement with regard to the mean

allocative efficiency of the baseline experiment with treatment 1 (0.48%).

3.3.1 ANALYSIS OF THE DEBRIEFING

At the end of the third repetition of the game, but before being informed of their payoff in the third round of

the game, the subjects were asked to answer a debriefing. The median fair share reported by the players in

the debriefing is 50%, similarly to our baseline sessions. The percentage of supposedly “opportunists” at

stage 9 is 67%. Again, philìa-reciprocity largely prevails (90%). Two questions were specifically devised to

check for the effects of the repetition of the game on the choices of the players. The question asked the

players whether the decision of the amount of points to send changed from one round to the other. The

majority of the players (55%) state that their willingness to send points changed with the passing by of the

rounds. Of those who reported changes, 45% stated that their willingness to send decreased, and 55% that it

increased. The effects of the repetition of the game are, therefore, quite ambiguous.

3.4 VARIANT 2: THE GAME WITH A PRE-PLAY COMMUNICATION STAGE

The second variant tried to raise the sense of belongingness of the players19 to a symmetrical

grouping via a non-binding stage of pre-play communication (cheap talk). It will be then interesting to check

whether the pre-play communication stage promoted the allocative efficiency of the circuit, raised sensibly

19 We selected four cohorts of ten students each, neophytes who had not participated in any of the previously described experiments. The instructions (reported in Appendix 5) were analogous to the ones of the baseline experiment, with an add-up in which topics-for-discussion in the pre-play communication stage were given. The PPC sessions were all conducted with treatment 1, i.e. with 16 points available to the first player.

21

the median gift, and the median percentage amount of the available sum sent to the next player. Our working

hypothesis is that the answer to the above questions should be positive.

Cheap talk as been defined by Farrell and Rabin (1996: 116) as “costless, nonbinding, nonverifiable

messages that may affect the listener’s beliefs”. The authors point out that in a game in which each player

can be of several types (in our example, a reciprocative type, and an un-reciprocative one), allowing players

a stage of cheap talk can serve as a way to map the type of the other players, if all the players share a

correlation between their true type and their preference towards the others’ beliefs about one’s own type

(Farrell and Rabin, 1996: 106). To tell it with Bruni (2006: 73), in fact, “it is important not only that that the

game is objectively capable of creating cooperation, but that the agents represent themselves subjectively the

game they are playing in such a way as to highlight that cooperating is a superior outcome vis-à-vis non

cooperation” (italics in the original, translation from Italian of the writers). Accordingly, after the reading of

the instructions and before the starting of the game, we asked the experimental subjects to discuss for 5

minutes about three questions we called their attention to. During the discussion, the players were left alone,

and their communications were not recorded. The questions were the following:

1. according to you, if all the players send half of the sum they have available, how much will all participants

win?

Through this question, we wanted to prompt reasoning by the player as to the benefits arising out of sending

all the amount of points they had available.

2) do you think that the introduction of a rule of behaviour among yourselves could be helpful in order to

raise the payoffs of all participants?

This question was meant to elicit the possibility of an shared pact among the players, thanks to which a

Pareto-efficient outcome could be achieved.

3) do you think that this rule of behaviour that you have just discussed will be used by the players during the

game? I would like to remind you that your choices will be anonymous and free.

This question asked the players to discuss about “compliance” issues with the rule the players had discussed,

the most simple and salient of which is that all players send all the amount available, provided that the

communication stage was not binding20. This question was also meant to prompt reasoning about the unequal

positioning of the players, given that if all players sent the whole amount available, player number 9 would

have had a relevant sum at his disposal (about 40 euros). Given that players were discussing behind a veil

ignorance, i.e. ignoring their positioning within the game (the result of a choice of Nature), this question was

20 According to Bicchieri (2005: 199, quoting an unpublished paper by Mackie), past experiments demonstrate that cheap-talk about social dilemmas usually increases cooperation rates. The primary content of such discussions are promises and commitments to cooperate. She reports, furthermore, that instructing subjects, as we did, that agreements are non-binding, usually deprives the communication stage of its beneficial effects. Our results show that there has been a significant increase in the allocative efficiency of the circuit thanks to the introduction of our topics-for-discussion. It may still be the case, however, that removal of the third question would have boosted efficiency even more.

22

meant to raise the consciousness that all players faced a common weakness, arising out of the compliance

problem with the agreed-upon rule of behaviour of those playing last.

We tried with our topics-for-discussion, then, to create an homogeneous grouping. It seems that the

idea itself of homogeneity shares important features with the Polanyian notion of symmetry: as we have

seen, Polanyi predicted that only in symmetrically organised groupings will reciprocative behaviour result in

economic institutions of some historical and anthropological importance. What is needed, in a certain sense,

is a passepartout21 capable of eliciting the willingness to indirectly reciprocate, while at the same time

keeping in mind that players have to reciprocate more than what they received before the multiplication

operated by the experimenter.

The credibility of the commitments, most likely undertaken by the participants during the pre-play

communication stage, depends crucially on the ability of the players to elicit social norms of fairness and

reciprocity, or to elicit a social identity, or “esprit de corps” (Bicchieri, 2005: iv-v), capable of producing a

change in preferences. Both group identity theory (cf. e.g. Yamagishi, 2002) and the theory based on

conformity to a norm of promise-keeping (Bicchieri, 2005) indeed shed light on the role of cheap-talk in

increasing cooperation rates. Whether the induced-symmetry hypothesis, or the group identity theory, or the

conformistic preferences one, is the most appropriate explanation of this phenomenon is hard to ascertain in

the absence of recordings of the cheap-talk stage. We believe, however, that recording the cheap-talk stage

would have produced undesirable confounds on the verbal behaviour of the subjects. We would like to

remark, however, that the way in which our cheap-talk topics-for discussion were designed points strongly to

a shared condition of weakness of the players.

A glimpse at the gift-decisions of the players confirms our hypothesis on the effectiveness of cheap-

talk (Figure 7).

21 The behaviour of the Trobriandese islanders, studied at length by both Malinowski and Mauss, centred on the exchange of symbolic items named soulava and mwali (respectively, necklaces and armbands made out of shells) provides us with a famous example of cultural passepartout. The key concept in order to interpret the function of such items is the one of inalienability (Gregory, 1997): gifts, differently from commodities, are never fully alienated from the giver, but give rise to reciprocal obligations, a feature which keeps trades (gift- and non-) alive and frequent among the islands. Whether such cultural passepartout served as a basis for exchange of economically-speaking equivalents, or whether it was only driven by ritual components, is a matter of academic debate in economic anthropology. Damon (1982: 343, quoted in Yan, 2005: 254), for instance, points out that although the kula trade does not fit in the commodities-trade paradigm, it was indeed meant as a way to expand the endowment of the participants.

23

FIGURE 7

PPC GAME: AVERAGE GIFT DECISIONS (ABSOLUTE FIGURES)

(PLAYER 1 TO 9)

0

200

400

600

800

1000

1200

1 2 3 4 5 6 7 8 9

order of play

poin

ts s

ent t

o ne

xt p

laye

r

PPC sessions

Figure 8 shows the mean gift of the players as a percentage of the sum they had available.

FIGURE 8

PPC GAME: AVERAGE GIFT DECISIONS (AS PERCENTAGE OF AVAILABLE SUM)

50556065707580859095

100

0 2 4 6 8 10

order of play

% o

f av.

sum

sen

t

PPC sessions

The average allocative efficiency is 28.20%, versus 0.48% of the baseline experiment with treatment 1. The

median gift is 100% of the sum available, and consequently the median payoff rose to 256 points.

Furthermore, the kindness strategy prevails (89%) with regard to the unkindness strategy (11%, one

“unkind” per session). No player played ITFT. The fact that the biggest distraction of points happened in the

first two steps of the game determined that such players managed to earn comparatively more than players

located near the end of the spectrum. Payoffs earned are shown in Figure 9.

24

FIGURE 9

PPC GAME: THE PAYOFFS (BY POSITION WITHIN THE GAME)

0

50

100

150

200

0 1 2 3 4 5 6 7 8 9 10

players by order of play

payo

ff e

arne

d

PPC sessions

3.4.1 ANALYSIS OF THE DEBRIEFING

In the debriefing survey, subjects report that the fair share to send ahead is 100% (median, mean: 78%).

Furthermore, they are usually consistent with their choices (58 % with ±10% interval, 66% with ± 20%).

84% of the subjects believe that the initial (pre-play) communication was useful in promoting the willingness

to send points. Furthermore, the pre-play communication stage managed to decrease the number of potential

opportunists at stage 9: the figures go as down as 55%, versus 68% of the baseline treatment. The remaining

questions of the debriefing answer, i.e. their behaviour in situations of real-life exchange of gifts, yield the

same results we observed in the baseline experiment, with a net prevalence of philìa-kind of reciprocity.

4. Exchange 4.1 EXPERIMENTAL DESIGN AND RESULTS

Our exchange experiment is designed as a bargaining game in which sellers (5 per session) decide how much

to send over to the market, knowing that this amount will be multiplied by a factor of 2 by the experimenter,

and a proposed division of the multiplied amount of points22. Five buyers view the offers as they are

formulated, knowing that they have four rounds available, that they can conclude one single transaction, and

that they have to accept one offer in order to make a positive gain (the same goes for sellers, who need to

have one of their offers accepted in order to have converted in euros the amount they have withheld at the

beginning and the portion of the multiplied amount they have assigned to themselves in the offer). We have

studied two different treatments. In one treatment (four sessions), there was common knowledge that buyers

saw on their screen the amount available initially to sellers (from now on, FI tr., standing for “full-

information treatment”). In this case, buyers could therefore form a preference for equitable offers. In the

second treatment (four sessions), such information was removed, so that sellers were uncertain about the

information package available to buyers (they knew only that buyers would have seen their “offers”), and

buyers saw on their screen only the amount of points offered to them by each seller, without any further

22 The instructions sheet for the market exchange experiment can be found in Appendix 6.

25

information (from now no, NI tr., “no-information treatment”). The game theoretic prediction for this game

is straightforward: sellers will always place the whole endowment E on the market, in order to decide a

division over 2E, and offer throughout the rounds the smallest granularity possible ε to buyers, an offer

which is accepted by buyers given that ε>0.

Figure 10 shows that the great majority of transactions have been concluded immediately. Only in

one case a couple of players has not managed to conclude a transaction, with the buyer not accepting the

proposed offer at round 4. FIGURE 10

EXCHANGE: NUMBER OF TRANSACTIONS CONCLUDED PER ROUND

0123456789

101112131415

Round 1 Round 2 Round 3 Round 4

Num

ber o

f suc

cess

ful t

rans

actio

ns

InfoNo-info

The average allocative efficiency of the market exchange game is 75%, regardless of the information

package available to buyers. It should be pointed out that the initial endowment of points (820) was designed

in such a way that, if sellers decided not to withhold points initially, and divide the amount in equal shares,

then all players would have earned the same amount of points that players in the reciprocity game (Tr. 1)

could gain if all players sent ahead the whole sum available. It is then interesting to look at the distance of

buyers’ and sellers’ median payoff from the equitable and Pareto-optimal division of the sum (820 for both).

Experimental data show that such a figure is null for sellers, whose median payoff is exactly 820 points,

across the two treatments. Buyers, on the other side, have gained a payoff that stands about 50% below the

equitable threshold, with minor differences across the two treatments (-53% in the FI tr. and -51% in the NI

tr.). Sellers propose buyers on average 50% of the amount on the market, but given that they usually

withhold points (the median amount of points on the market is 48% of the endowment), this results in the

divider’s advantage accruing to sellers.

The rules of the games, based on bilateral interaction between one random buyer and one random

seller, seem to have favoured the allocative efficiency of the game, irrespective of the information package

available to buyers. Interestingly, furthermore, players place on the market less than half of the endowment

26

of points, against the Pareto-preferences driven decision dictating to place the whole endowment on the

market, in order to exploit the effect of the multiplier.

4.2 THE DEBRIEFING SURVEY

In order to gain insights on players’ strategies, we asked them to answer a debriefing survey

designed upon their specific role within the game (buyer or seller). We asked sellers to answer our debriefing

questions with regard to the accepted offer, or the last offer they had formulated if none had been accepted23.

Sellers are usually confident about their choices: in most cases they would have accepted as a buyer the offer

they have formulated in the role of a seller (80% in the FI tr., 90% in the NI tr.). The perception of fairness,

however, changes. In the FI tr., 90% of the sellers state that they think they were fair to the buyers. In the NI

tr., however, 65% of the sellers answer negatively, showing that sellers have presumably taken advantage of

the lack of a crucial information, in order to make what they deemed inequitable offers. It should be pointed

out, however, that buyers have earned on average a higher payoff in the NI tr. than in the FI tr. Still, as we

have seen, buyers have earned about half of the payoff of sellers. Most sellers are satisfied of their offers

(65% and 55%, respectively). When we ask them to indicate a fair division of the multiplied sum, they

answered that it is fair for them to get on average 59% of the sum. In the NI tr., this figure goes down to

52%. Furthermore, 65% of sellers in the FI tr. state that the fear of not earning a positive payoff did not play

any role in their choices, while in the NI tr. 60% of the sellers gave a positive answer. When we asked sellers

to describe, in their own words, the criteria they used in order to formulate their offer, 50% of the sellers in

the FI tr. stated that equity was their overriding concern, with payoff-concern being expressed by the 35% of

the sample. The remaining answers were unclassifiable. In the no-info treatment, on the other side, 45% of

the sellers expressed an overriding concern for payoff (and only 10% for equity), with a threshold being used

by 15% of the subjects, 10% of the subjects stating that they were afraid of future lower offers and 10%

stating they were guided by necessity (i.e., it was the last round). The remaining answers were unclassifiable.

We turn our attention now to buyers. We first asked them whether their offers would have been

different had they been a seller instead of a buyer. 85% of the buyers in FI tr. and 90% of the NI tr. answered

positively. When we asked them whether they thought they had been treated equitably by sellers, buyers in

the FI tr. were equally split in their answers, while in the NI tr. 65% of the subjects answered negatively,

though in this case equity was not readily ascertainable as buyers ignored the amount of points available to

sellers. Buyers are split once it comes to satisfaction as to the offers accepted (50%-50% in FI tr., and 55%

expressing a positive attitude in the NI tr.). To the question concerning the equitable division of the

multiplied sum, in the FI tr. buyers indicate a division of 51% of the sum for them. In the NI tr. the amount

indicated is on average 53% to their favour. The fear of not winning anything played indeed a role in the

choices of the buyers (70% of the buyers in the FI tr. and 60% in the NI tr. state so). We asked buyers to

describe the criteria they had followed in order to decide which of the offers to accept. In the FI tr. 35% of

the buyers express an overriding concern for payoff, and 20% for equity. The remainder state that they were

23 A translation of the debriefing offered to buyers and sellers can be found in APPENDIX 7.

27

guided by necessity (“it was the last round”, 10%), fear of future lower offers (10%), or a threshold they had

established (15%). The remaining answers were unclassifiable. In the NI tr., payoff was the overriding

concern (45%), with equity playing only a minor role (10%) and 15% of the subjects stating they used a

threshold. The remaining answers were unclassifiable.

5. Final remarks and future developments In this section we would like to indicate a few results of our inquiry and suggest some possible future

research-topics. First, it is interesting to ascertain what would happen in the case the reciprocity ring was

modified as to make each player trusting the same number of player(s). This is in fact what happens in

Greiner and Levati’s experiment, whereby each player receives a certain amount from one player and

reciprocates forward. In this case, players at the beginning of the decisional chain are not anymore in the

demanding position of needing to trust a large number of players. It seems us that it would be interesting to

study experimentally such a game with ten players. This would help us also to build a reciprocity ring which

resembles more closely the one-to-one interaction that is at the core of our market exchange experiment.

A possible criticism to our market game is in fact that the interaction-structure is so different from

the reciprocity-ring structure as to make comparisons of allocative efficiency impossible. We believe

however that the structure of market exchange itself is best mimicked as a bilateral exchange among

anonymous players, where several offers are competing on the market. On the other side, generalised

systems of reciprocity, prototypically the Trobriand economy, are organised as continuous give-and-take,

although the final redistribution of resources is a feature extraneous to the kula trade arrangement. The main

drawback of this added feature, however, is that it is extremely demanding for those who play at the

beginning of the game. This is why removing this characteristic may yield important insights.

We have seen in our reciprocity sessions that if the game is played without any form of injected

symmetry, its allocative efficiency level is very low: such results stand in marked confirmation of the

anthropological literature, coming from Polanyi’s idea of symmetry, as well as Marcel Mauss’ (2002) idea of

gift-exchange as a fait social total.

Finally, a criticality of our comparative institutional analysis attempt, requiring further study, is the

fiduciary aspect of market interactions. This is an overriding element of our reciprocity experiment which

does not enter directly in our market exchange design. The problem is however eased by the remark that this

is a fundamental difference between gift-trade and market-trade, although it seems undeniable that trust plays

indeed a role in facilitating market interaction, and that an element of indeterminacy about the interaction’s

results is necessary in order to make appropriate comparisons.

28

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29

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30

APPENDIX 1

Instructions sheet of the pilot experiment (originally in Italian)

Welcome and thank you for your participation. Please read the following instructions carefully. From this moment until

the end of the experiment we ask you not to communicate among yourselves. For any doubt, at the end of the reading of

the instructions you can raise your hand, and we will answer to any question you may want to ask. During this

experiment you will be able to earn experimental points, which at the end of the experiment will be converted in euros

with the following exchange rate:

1 experimental point = 1 eurocent (0.01 €)

All the participants have already gained, to thank them for their participation, 200 experimental points. How much you

can earn, leaving aside the show-up sum, will depend on your choice, as well as on the choice of all other participants in

the experiment.

Your group is made of 10 people. At the beginning of the experiment, the computer will determine in a random fashion

who will be the first player, who will be the only one to know that she is the first. The first player will be given a certain

amount of experimental points. She can freely decide how much to withhold and how much to send to a second player,

randomly chosen by the computer among the remaining players. The amount sent will be multiplied by two by the

computer. If we denote with x the amount that the first player decides to send to the second, the second player will have

hence at his disposal 2x. The second player decides in his turn how much to withhold for himself of this amount, and

how much to send to a third player, randomly chosen by the computer. This gets repeated until the game arrives at the

tenth player. At every passage of points from one player to the other, the amount sent will be multiplied by two. All

your choices will be anonymous.

The tenth and last player will not make any choice. The amount that arrives to him, in fact, will be divided in equal

shares among all the participants to the experiment.

At the end of the experiment you will be asked to answer a few short questions. You will be then informed of your

payoff. Your payoff, excluding the 200 points that all of you have gained for your participation, will be calculated in the

following fashion:

Amount that you decide to withhold +

Everything reaches the 10th player, divided by 10

Your final payoff

The maximum amount of points, including the 200 points which you will receive for your participation, that you can

win is 2500 points. Any points in excess of this threshold which you might gain in the experiment will not be converted

into euros at the end of the experiment.

Are there any questions?

31

APPENDIX 2

Instructions sheet of the baseline experiment (originally in Italian)

Welcome and thank you for your participation. Please read the following instructions carefully. From this moment until

the end of the experiment we ask you not to communicate among yourselves. For any doubt, at the end of the reading of

the instructions you can raise your hand, and we will answer to any question you may want to ask.

Your group is made of 10 people. At the beginning of the experiment, the computer will determine in a random fashion

who will be the first player, and she will be the only one to know that she is the first. The first player will be given a

certain amount of experimental points. She can freely decide how much to withhold and how much to send to a second

player, randomly chosen by the computer among the remaining players. The first player opens the game, and hence she

has to send an amount of points greater than zero to player number two. The amount sent will be multiplied by two by

the computer. If we denote with x the amount that the first player decides to send to the second, the second player will

have hence at his disposal 2x. The second player decides in his turn how much to withhold of this amount, and how

much to send to a third player, randomly chosen by the computer. This gets repeated until the game arrives at the tenth

player. At each passage of points from one player to the other, the amount sent will be multiplied by two. All your

choices will be anonymous.

The tenth and last player will not make any choice. The amount that arrives to him, in fact, will be divided in equal

shares among all the participants to the experiment.

Your final pay off will be calculated in the following fashion:

Amount that you decide to withhold +

Everything reaches the 10th player, divided by 10

Your final payoff

For your information, if all the players send all the amount at their disposal, the average final payoff will be about 800

(in treatment 2: 1,400) points per each single player.

The players from number two to number nine have a further option: they can close the game. In this case, the closing

player determines the end of the experiment. The remaining players are thus not allowed to play. In the case of closure,

the amount that the player who closes has at his disposal is divided between himself and the players who played before

him. The points withheld by the players who played before the closure are summed to this amount. The remaining

players obtain nothing from the game.

At the end of the experiment you will be asked to answer a few short questions. You will be then informed of your

payoff.

The experimental points you have gained will be converted into euros with the following exchange rate:

1 experimental point = 1 eurocent (0.01 €).

You have already gained, to thank you for your participation, 200 points. How much you can earn more, will depend

on your choice, as well as on the choice of all other the participants in the experiment.

Are there any questions?

32

APPENDIX 3

Debriefing of the baseline experiment

(originally in Italian)

1)

Leaving aside the amount that you have kept for yourself, do you expect to receive back MORE or LESS than the

amount you have sent?

2)

According to you, what is a fair share (in percentage terms) to send to the next player?

3)

Supposing that you are the first player, your decision of how much to withhold would change if you were the ninth

player in stead of the first?

4)

Which of following statements describes you best?

1. when I give a present to an acquaintance, I expect to receive a present back in a short amount of time;

2. when I give a present, I give it regardless of the possibility to receive one back;

3. usually I do not give presents

5)

Which of following statements describes you best?

1. I am ready to give a present if an acquaintance gives me one. But I would not make the first step (I wait for a gift of

the other)

2. I am ready to give a present if an acquaintance gives me one. I am ready to give the present first.

3. I give presents unconditionally, regardless of the behaviour of the person I give the present to

4. I do not give presents, even in the case I receive one

6)

What is your sex?

Female

Male

33

APPENDIX 4 Instructions sheet of the repeated-game experiment

(originally in Italian)

The instructions were in all regards analogous to the ones reported in Appendix 2. At the beginning of the instructions,

the following lines were added:

The game you are about to play will be repeated for three times. The rules of the game that we are about to read are

valid for each round of the game. … The potentially attainable gains are 500 points in each repetition of the game.

At the end of the instructions, the following lines were added:

Be aware that the order of play is random in each repetition of the game. You can be, for example, player number three

in the first session, the fourth in the second and the tenth in the third.

At the end of the third and last round you will be asked to answer a few brief questions. You will be then informed of

your payoff in the third repetition of the game.

The final payoff will be calculated as the simple sum of your payoffs in each round of the game.

All the players have already gained, to thank them for their participation, 400 points.

Debriefing

(originally in Italian)

The debriefing was in all regards analogous to the one reported in Appendix 3. The following questions were added:

6) Did your choice of the amount to send change with the passing by of the rounds? 1. Yes 2. No

7) If you have answered yes to the previous question, then answer also this question:

Did your propensity to send points increase or decrease?

1. decreased

2. increased

34

APPENDIX 5

Instructions sheet of the pre-play communication experiment (originally in Italian)

The instructions were in all regards analogous to the ones reported in Appendix 2. At the end of the instructions, the

following lines were added:

You can now discuss among yourselves, for about five minutes, apropos the experiment. To help you in the discussion,

we suggest that you reflect upon the following points:

1. according to you, if all the players send half of the sum they have available, how much will all participants win?

2) do you think that the introduction of a rule of behaviour among yourselves could be helpful in order to raise the

payoffs of all participants?

3) do you think that this rule of behaviour that you have just discussed will be used by the players during the game? I

would like to remind you that your choices will be anonymous and free.

Debriefing

(originally in Italian)

The debriefing was in all regards analogous to the one reported in Appendix 3. The following question was added:

6. Do you think that the initial communication stage has been useful in promoting the willingness to send points?

35

APPENDIX 6 Instructions sheet of the market exchange experiment

(originally in Italian) [sentences added in the full-information treatment]

Welcome and thanks for your participation. Please read the following instructions carefully. From this moment until the end of the experiment we ask you not to communicate with your neighbours. For any doubt, after having read the instructions you can raise your hand, and one of us will answer to your questions. Your group is made of 10 people. At the beginning of the experiment the computer will determine in a random fashion your role in the game. You can be either a seller or a buyer. Five of you will be sellers and five buyers. If you will be a seller, you will have a certain number of points at your disposal, and you will be able to decide how much to withhold of this sum, and how much to send to the anonymous buyers as an offer. Everything you will send as a seller will be multiplied by two by the experimenter. If you will be a seller, you will also decide upon a division of the offered sum between yourself and the anonymous buyers. As the sellers send their offers, these will appear on the screen of all the buyers, who are free to choose, or not, one of the several offers. The total time available to sellers (to formulate an offer and its division) and to buyers (to accept, or not, one of the offers) is four [eight] minutes. If you are a buyer, and you accept an offer, this will disappear from the screen of all other buyers. In this case, you and the seller whose offer you have accepted wait until the end of the experiment. If you are a buyer and you do not want to accept any of the offers received, you then simply wait that the four [eight] minutes are over, when the remaining sellers will formulate a new offer. If within the four [eight] minutes no buyer accepts an offer, in fact, the seller will formulate a new offer at the end of the four [eight] minutes, and everything will repeat in the same fashion. The maximum number of offers for each seller is four. The total duration of the experiment is at maximum 16 [32] minutes. If no buyer accepts, within the four possible rounds, the proposal of a certain seller, this seller will lose the possibility to convert in euros the points he had decided to withhold in the last offer he has formulated. [The sum initially available to sellers will appear on the screen of the buyers]. For those who formulate an offer which is accepted, and for the one who accepts an offer, the payoff is thud calculated: If you are a seller: Amount you withhold + Part of the amount, multiplied by the experimenter, that you have kept for yourself in the accepted offer = FINAL PAYOFF If you are a buyer: Part of the amount, multiplied by the experimenter, that the seller has offered you, in the offer you have accepted = FINAL PAYOFF If you formulate offers which are not accepted, and if you do not accept any offer, within the four possible rounds, your final payoff will be zero. At the end of the experiment you will be required to answer a few questions. You will be then informed of your payoff. The experimental points you have gained will be converted in euros with the following exchange rate: 1 experimental point = 0.01 eurocent You have already gained, only for your participation, 200 experimental points. Are there any questions?

APPENDIX 7

36

Debriefing of the market exchange experiment (originally in Italian)

DEBRIEFING FOR SELLERS: with reference to the accepted offer, or to the last offer in the case in which none of your offers were accepted, answer to the following questions:

1. If you were a buyer, would you have accepted the offer you formulated as a seller? 2. do you think you were fair to the buyers? 3. are you satisfied of your offer choice? 4. if you had had more rounds available, would your choices have changed? 5. can you describe briefly which criteria you have used in order to formulate your offer? 6. what is in your opinion a fair division of the multiplied amount of points? 7. did the fear of not winning anything play a role in your choices? 8. In which year were you born? 9. what is your sex?

DEBRIEFING FOR BUYERS:

1. Would your choices of offer have been different were you a seller? 2. do you think you have been treated fairly by the seller? 3. are you satisfied of the offer you have accepted? 4. can you describe briefly on the basis of which criteria have you decided which offer to accept? 5. what is in your opinion a fair division of the multiplied amount of points? 6. did the fear of not winning anything play a role in your choices? 7. In which year were you born? 8. what is your sex?

Tags used in order to codify sellers’ (buyers’) answers to question number 5 (4): Necessity: The player explains that it was the last offer he thought he could profit of (or the fourth offer), and hence he was “forced to accept” (or “forced to send” in the case of sellers). Payoff: in this case buyers and sellers express an overriding concern for their material payoff. Equity: the buyer (or seller) expresses a clear concern for the equity of the division, although the interpretations of equity are quite different. A number of sellers for example stated it was fair to divide the sum almost equally with the biggest part to themselves, for they thought to be in a privileged position. Fear: the players express a feeling of fear or anxiety for not managing to conclude one transaction. Threshold: the players state they had fixed a threshold of acceptability and have accepted offers that exceeded such threshold.