There is ample of experimental evidence that suggests a considerable proportion of second movers reciprocate in two-person trust games. This kind of reciprocal behavior is positive. Positive reciprocity can be described as the costly behavior of a second mover that rewards a first mover based on both the gains from exchange to the second mover as well as the second mover’s beliefs about the intentions motivating the action of the first mover. We model the formation of the second mover’s beliefs to include the opportunity cost of the first mover’s action. We design a treatment variable that varies this cost between zero (in the involuntary trust game) and positive (in the voluntary trust game). We predict that the cooperative move in the positive opportunity cost games will generate greater reciprocity than the same move in the zero opportunity cost game.

Co-authors Kevin McCabe and Vernon Smith