The role of institutional incentives and the exemplar in promoting cooperation

Abstract

People on average do not play their individually rational Nash equilibrium (NE) strategy in game experiments based on the public goods game (PGG) that model social dilemmas. Differences from NE behavior have also been observed in PGG experiments that include incentives to cooperate, especially when these are peer-incentives administered by the players themselves. In our repeated PGG experiment, an institution rewards and punishes individuals based on their contributions. The primary experimental result is that institutions which both reward and punish (IRP) promote cooperation significantly better than either institutions which only punish (IP) or which only reward (IR), and that IP has contribution levels significantly above IR. Although comparing their single-round NE strategies correctly predicts which incentives are best at promoting cooperation, individuals do not play these strategies overall. Our analysis shows that other intrinsic motivations that combine conforming behavior with reactions to being rewarded/punished provide a better explanation of observed outcomes. In our experiments, some individuals who display more cooperation than other individuals can be regarded as the exemplars (or leaders). The role of these exemplars in promoting cooperation provides important insights into understanding cooperation in PGG and the effectiveness of institutional incentives at promoting desirable societal behavior.