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Neural Responses to Sanction Threats in Two-Party Economic Exchange

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Author Info

  • Jian Li

    ()
    (Department of Psychology, New York University)

  • Erte Xiao

    ()
    (Department of Social and Decision Sciences, Carnegie Mellon University)

  • Daniel Houser

    ()
    (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)

  • P. Read Montague

    ()
    (Menninger Department of Psychiatry & Behavioral Sciences, Baylor College of Medicine)

Abstract

Sanctions are used ubiquitously to enforce obedience to social norms. Recent field studies and laboratory experiments have demonstrated, however, that cooperation is sometimes reduced when incentives meant to promote pro-social decisions are added to the environment. Although a variety of explanations have been suggested, the neural foundations of this effect have not been fully explored. Using a modified trust game, we find trustees reciprocate relatively less when facing sanction threats, and the presence of sanctions significantly reduces trusteeÕs brain activities involved in social reward valuation (VMPFC, LOFC, and Amygdala), while simultaneously increases brain activities in parietal cortex previously implicated in rational decision making. Moreover, we find that neural activity in trusteeÕs VMPFC area predicts her future level of cooperation under both sanction and no-sanction conditions, and that this predictive activity can be dynamically modulated by the presence of a sanction threat.

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Bibliographic Info

Paper provided by George Mason University, Interdisciplinary Center for Economic Science in its series Working Papers with number 1012.

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Length: 25 pages
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:gms:wpaper:1012

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References

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  1. David Dickinson & Marie-Claire Villeval, 2005. "Does Monitoring Decrease Work Effort? The Complementarity Between Agency and Crowding-Out Theories," Working Papers 05-12, Department of Economics, Appalachian State University.
  2. James Andreoni & William Harbaugh & Lise Vesterlund, 2003. "The Carrot or the Stick: Rewards, Punishments, and Cooperation," American Economic Review, American Economic Association, vol. 93(3), pages 893-902, June.
  3. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May.
  4. Armin Falk & Urs Fischbacher, . "A Theory of Reciprocity," IEW - Working Papers 006, Institute for Empirical Research in Economics - University of Zurich.
  5. Frey, Bruno S, 1993. "Does Monitoring Increase Work Effort? The Rivalry with Trust and Loyalty," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 663-70, October.
  6. Friedman, James W., 1985. "Cooperative equilibria in finite horizon noncooperative supergames," Journal of Economic Theory, Elsevier, vol. 35(2), pages 390-398, August.
  7. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  8. Tore Ellingsen & Magnus Johannesson, 2008. "Pride and Prejudice: The Human Side of Incentive Theory," American Economic Review, American Economic Association, vol. 98(3), pages 990-1008, June.
  9. Benoit, Jean-Pierre & Krishna, Vijay, 1985. "Finitely Repeated Games," Econometrica, Econometric Society, vol. 53(4), pages 905-22, July.
  10. Houser, Daniel & Xiao, Erte & McCabe, Kevin & Smith, Vernon, 2008. "When punishment fails: Research on sanctions, intentions and non-cooperation," Games and Economic Behavior, Elsevier, vol. 62(2), pages 509-532, March.
  11. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  12. Ernst Fehr & Bettina Rockenbach, 2003. "Detrimental effects of sanctions on human altruism," Microeconomics 0305007, EconWPA.
  13. Cox, James C., 2004. "How to identify trust and reciprocity," Games and Economic Behavior, Elsevier, vol. 46(2), pages 260-281, February.
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Citations

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Cited by:
  1. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A Preference-based Lucas Critique of Public Policy," CESifo Working Paper Series 2734, CESifo Group Munich.
  2. Xiao, Erte & Houser, Daniel, 2011. "Punish in public," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 1006-1017, August.
  3. Samuel Bowles & Sandra Polania-Reyes, 2011. "Economic incentives and social preferences: substitutes or complements?," Department of Economics University of Siena 617, Department of Economics, University of Siena.
  4. Xiao, Erte, 2012. "Justification and cooperation," MPRA Paper 36120, University Library of Munich, Germany.
  5. Jingnan (Cecilia) Chen & Daniel Houser, 2013. "Promises and Lies: An Experiment on Detecting Deception," Working Papers 1038, George Mason University, Interdisciplinary Center for Economic Science, revised Feb 2013.
  6. Houser, Daniel & Xiao, Erte, 2010. "Inequality-seeking punishment," Economics Letters, Elsevier, vol. 109(1), pages 20-23, October.
  7. Samuel Bowles & Sandra Polanía Reyes, 2009. "Economic Incentives and Social Preferences: A preference-Based Lucas Critique of Public Policy," UMASS Amherst Economics Working Papers 2009-11, University of Massachusetts Amherst, Department of Economics.
  8. Xiaofei (Sophia) Pan & Daniel Houser, 2011. "Social Approval, Competition and Cooperation," Working Papers 1028, George Mason University, Interdisciplinary Center for Economic Science.
  9. Eric Schniter & Timothy Shields, 2013. "Recalibrational Emotions and the Regulation of Trust-Based Behaviors," Working Papers 13-16, Chapman University, Economic Science Institute.
  10. Erte Xiao & Daniel Houser, 2014. "Sign Me Up! A Model and Field Experiment on Volunteering," Working Papers 1043, George Mason University, Interdisciplinary Center for Economic Science.
  11. repec:hal:wpaper:hal-00741973 is not listed on IDEAS
  12. Samuel Bowles & Sandra Polania-Reyes, 2012. "Economic Incentives and Social Preferences: Substitutes or Complements?," Journal of Economic Literature, American Economic Association, vol. 50(2), pages 368-425, June.

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