Ostracism

With S. Nageeb Ali

Abstract: Many communities rely upon ostracism to improve cooperation in bilateral relationships: if an individual deviates in one relationship, other innocent players come to learn about this deviation, and proceed to shun the guilty player while continuing to cooperate with each other. Typically, it is assumed that information spreads through word-of-mouth communication and that victims and third-parties have no incentive to lie about their experience with guilty players. We show, perhaps surprisingly, that innocent players may not have the incentive to communicate truthfully. Communication incentives are particularly severe in equilibria in which guilty players are permanently ostracized: such equilibria cannot support cooperation significantly beyond what each pair of players could obtain without community enforcement altogether. The challenge is that a victim of cheating prefers to cheat herself rather than to report her victimization to others. However, ostracism equilibria that feature forgiveness can foster truthful communication and thereby improve upon permanent ostracism. Our results suggest a new perspective on forgiveness and redemption in social norms.

Working paper 6/14/2013

NSF award on social networks

Nageeb Ali and I have been awarded a three-year grant from the National Science Foundation Economics Program, entitled “Enforcing Cooperation in Networked Societies.” Stay tuned for our first working paper soon (Update: now available), and lots of great projects to follow after that.

Abstract excerpt: The foundation of economic activity and growth is in the ability of individuals to trust and trade with each other over time. Throughout human history, much of economic activity occurs in realms where formal legal institutions are unwilling or unsuited to enforce cooperative behavior. A growing literature on informal enforcement suggests that the networked pattern of social relationships plays a key role in supporting cooperation: as information about past behavior diffuses through the network, an individual who deviates in a partnership is punished not only by her partner but also by those who come to learn about it. Our research program studies how communities enforce cooperation through their social networks.

Enforcing cooperation in networked societies

With S. Nageeb Ali

Abstract: Which social norms and networks maximize cooperation in bilateral relationships? We study a network of players in which each link is a repeated bilateral partnership with two-sided moral hazard. The obstacle to community enforcement is that each player observes the behavior of her partners in their partnerships with her, but not how they behave in other partnerships. We introduce a new metric for the rate at which information diffuses in a network, which we call viscosity, and show that it provides an operational measure for how conducive a network is to cooperation. We prove that clique networks have the lowest viscosity and that the optimal equilibrium of the clique generates more cooperation and higher average utility than any other equilibrium of any other network. This result offers a strategic foundation for the perspective that tightly knit groups foster the most cooperation. We apply this framework to analyze favor exchange arrangements, decentralized trade in networked markets, and social collateral.

Working paper 10/31/2012