Mechanisms of Generalized Exchange: Towards an Integrated Model

Abstract

Generalized exchange is a common practice with wide-ranging implications. Yet it remains a puzzle for theories of rational choice, social exchange, and evolutionary biology. Prior investigations focus on mechanisms developed or tested in isolation, and almost all assume that social preferences are homogenous. This article presents and tests an integrated model of generalized exchange that combines strategic reputation building, fairness-based selective-giving, the obligation to pay it forward, and heterogeneous social preferences (values). Using laboratory experiments, we show that each mechanism is robust: each has significant effects even when we include all four mechanisms in the model and control for other factors. However, some mechanisms have more influence than others, and different combinations of mechanisms yield a wide range of generalized exchange. Overall, generalized exchange is a collective result of people who strive to increase their resources, make decisions contingent on the visibility of their actions and on the behavior of others with whom they interact, reciprocate to a system from which they benefited, and behave consistently with their values. These values moderate how people respond to the presence or absence of reputational incentives, as well as the extent to which they reward generous behavior and punish stingy behavior.

Keywords: Exchange, Reciprocity, Experiment, Sociology, Economics, Biology