Question

What is the Outcome Based Model of Fehr and Schmidt? How would you describe the Trust and Reciprocity hypothesis?

Answer 1

Outcome Based Model of Fehr and Schmidt

Outcome Based Model of Fehr and Schmidt focus on the outcomes or payoffs of social interactions, any deviation between an individual's payoff and the equitable payoff (e.g., the mean payoff or the opponent's payoff) is supposed to be negatively valued by that individual.

Trust and Reciprocity hypothesis

Trust and reciprocity facilitate cooperation and are relevant to virtually all human interactions. They are typically studied using trust games: one subject gives (entrusts) money to another subject, which may return some of the proceeds (reciprocate). Currently, however, it is unclear whether trust and reciprocity in monetary transactions are similar in other settings, such as physical effort. Trust and reciprocity of physical effort are important as many everyday decisions imply an exchange of physical effort, and such exchange is central to labor relations. Here we studied a trust game based on physical effort and compared the results with those of a computationally equivalent monetary trust game. We found no significant difference between effort and money conditions in both the amount trusted and the quantity reciprocated. Moreover, there is a high positive correlation in subjects' behavior across conditions. This suggests that trust and reciprocity may be character traits: subjects that are trustful/trustworthy in monetary settings behave similarly during exchanges of physical effort. Our results validate the use of trust games to study exchanges in physical effort and to characterize inter-subject differences in trust and reciprocity, and also suggest a new behavioral paradigm to study these differences.

Trust exists to some degree in all human interaction and is associated with a more healthy, egalitarian and productive society .It can be defined as a positive expectation in the face of uncertainty emerging from social relations .Trust enables cooperative behavior, facilitates organization in both permanent and temporary work groups and is associated with higher job satisfaction, lower labor cost and larger profits .It can be seen in diverse types of interactions: people trust money to bankers, hoping that they won't run away with it; they trust their own home, letting complete strangers stay in their house and they also trust physical effort, for example by helping a friend move. Across such situations trust plays different roles and it seems important to understand commonalities and differences.