BoundedRationality_TheAdaptiveToolbox.pdf

Goodwill Accounting and the Process of Exchange 337
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- Nice Types -•- Defectors |
Figure 18.9 Average cumulative payoffs by agent types.
other nice strategies while almost always defecting against their noncooperative
neighbors. The nice strategies all have higher payoffs with the exception of
agent 22. Figure 18.9 plots the average cumulative earnings of the nice strategies
versus the defectors. As we see, defectors do better in the beginning; however,
by period 112 the cooperators have had enough time to work out their goodwill
accounting to pull ahead. So far we have not done simulations that make use of
mind reading, but we predict this is likely to reduce the time over which
noncooperators benefit.
INSTITUTIONS AS EXTENSIONS OF MIND
Exchange is governed by rules, both formal and informal, which define individual
rights and responsibilities. These rules make up our social institutions,
which in turn shape our incentives to increase trading opportunities. We
hypothesize that our economic institutions serve as extensions of our minds' capacity
for exchange as our economic environment has moved increasingly from
personal to impersonal exchange settings. For example, in personal exchange
individuals choose who they want to trade with based on their "goodwill" accounting.
We call this right a "minimal property right," since it seems necessary
for personal exchange. One augmentation of the mental "goodwill" system is
the use of reputational institutions, for example, credit reporting. These
reputational mechanisms allow the "minimal property right," normally found in
personal exchange to extend to impersonal exchange. We propose that new behavioral
experiments be carried out to study the extension of mental "goodwill"