Social Coordination, Self-Image, and Cooperation in Investment Games

Abstract

Why do people cooperate in social groups? This paper provides experimental evidence that the fear of losing the self-image as a norm-compliant player might be one explaining factor. To that end an investment game with a public-goods character is played in different institutional setups that vary in the possibility to build reputation as well as in the communication of potential social norms. In addition, it provides a model that explains participants' decisions based on an extension of the neoclassical model. It covers a trade-off between pure wealth maximization and the minimization of damage to the self-image of being compliant. Experimental results show that this tradeoff is important in those treatments that allow for reputation building. We conclude that the wish to “do the right thing” can enhance cooperation in a socially stable environment.