One Shot games, Emotions, and Gains from Exchange

The thing I have found most fascinating from class is how people cooperate in one-shot games. It seems as if experimenters have tried to come up with ever more elaborate experiments which discourage cooperation in trust and dictator games, and yet, even in some of the most extreme cases, people still act, seemingly irrationally, against their own self interest. In repeated games, we can attribute this to building a reputation, but when there is only a single interaction, this explanation falls apart. Why then, can we get to the efficient outcomes in trust games, and why do so many not keep it all in dictator games?

In class, we seemed to have come up with a reasonable account for these behaviors, which boils down to emotions. We feel guilty if we deviate and keep all the money in a trust game. We have a moral code which tells us it is wrong to take from someone who has trusted us. Because of “irrational” emotions, it is in our best interest to cooperate, in order to save ourselves the sleepless nights. After reading Hayek, it seems like these emotions are a part of tradition, and lie between instinct and reason. I would not be at all surprised if a child, playing the role of person B in a trust game, deviated most of the time.

And so we come to thing I find most fascinating: society has developed to the point that we reach can often reach the efficient outcome, even in the extremes. When we are a tourist at a restaurant we never plan on going to again, we still tip. We know this is the best outcome for society as a whole, because if tourists never tipped, servers would never treat tourists well. We are willing to sacrifice a little here and there in order to promote the efficient outcome.

One of the questions I still have is whether it really is irrational on the individual level to do this. When I am confronted with a situation where I have a chance to deviate, I sometimes wonder what would happen if I did take advantage of the situation. Would my action influence how others behave when they come into the same situation? Could this make it so that next time I run into someone completely different, I will be in a worse position? These thoughts push me more towards cooperating. Although the emotions which push me towards cooperating may be irrational on an individual level, these thoughts seem to be a rational case for cooperating, through looking at an extending web of repeated interaction.

Either way, I think the most important takeaway, from both one-shot games and the entire class, is that people strive to make their lives better, and the natural vehicle for achieving this is a desire to truck, barter, and exchange. This desire has led to us develop complex ways to encourage the maximum gains from exchange, including exploiting reputation and emotions.