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Cooperation among strangers: experiments with social norms, institutions, and money

Final Report Summary - STRANGERS (Cooperation among strangers: experiments with social norms, institutions, and money)

Humans spent their evolutionary past in small bands of hunters and gatherers whose survival depended on their ability to cooperate, reciprocating help over time rather than behaving opportunistically. If our dispositions toward cooperation evolved genetically and culturally within face-to-face interactions, then what did allow humans to succeed in cooperative tasks involving often impersonal interactions with millions of individuals? Does this imply that cooperation among strangers hinges on cultural characteristics or on the adoption of key facilitating institutions? What is the role of a fundamental institution such as money in shaping society’s ability to cooperate? We have tackled these questions using theoretical analysis and economic experiments.
The initial step has been to study the differential abilities of societies to cooperate in the absence of any enabling institution. We considered the long-standing question of the Italian North-South divide as a paradigmatic situation. Italy offers the necessary variability in socio-economic performance and local history to investigate cooperative behavior, while, at the same time, exhibiting constancy in several relevant factors such as institutions, language and dominant religion.
Our experiments show that the Italian North-South divide originates not only from regional differences in incentives but also from how differently people respond to the same payoffs. We find that people in the North achieve higher levels of cooperation than in the South as Northern and Southern citizens react differently to the same incentives. This evidence suggests that equalizing the structure of incentives would not completely eliminate the North-South disparities, to the extent to which they derive from differences in social norms, which are slow to change.
For a video presentation of the project see password: $trangers_project.
Furthermore, we have found that the North-South gap lie in the ability to cooperate, but not necessarily in other dimensions such as risk tolerance or altruism. Two well-known contributions to this debate are those of Edward Banfield’s who proposed the concept of “amoral familism” in his book on The moral basis of a backward society and of Robert Putnam who stressed the role of social capital in Making democracy work. We have shown that the behavioral gap in the ability to cooperate in Italy cannot be accounted for neither by proxies of social capital, nor by “amoral familism.”
We have achieved innovative results also on the role of money as an institution in society. If there is one lesson to draw from the recent spate of financial crises, it is that breakdowns in the functioning of monetary systems are highly disruptive events, socially and economically. Consider, for example, the turmoil associated with Greece’s possible exit from the Eurozone. Our study concerns “fiat” monetary systems, in which intrinsically worthless symbolic objects may be offered in exchange for goods and services. It corresponds to the systems in place worldwide since the demise of the gold standard in the early 1970s. We find that money preserves cooperation as groups get larger, but it displaces norms of voluntary provision of help.
This study has identified a unique behavioral reason for the existence of money. Norms of voluntary cooperation are difficult to apply in a society of strangers, especially in large groups, because individuals may not trust each other. In the experiment, monetary exchange emerged endogenously and supported a stable level of cooperation in small as well as large groups. The exchange of intrinsically worthless objects acted as a substitute way to build trust that a cooperative act today would lead to cooperative conduct in the future. Once the convention of money took hold, participants replaced norms of voluntary cooperation with a norm of exchange, i.e. trading cooperation for an intrinsically worthless object, quid pro quo. Consequently, the norms related to money and gift exchange did not coexist, because monetary exchange crowded out gift exchange.