Retaliation and Reciprocity

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Fairness Retaliation and Reciprocity

"A man ought to be a friend to his friend and repay a gift with gift. People should meet smiles with smiles and lies with treachery."(Fehr and Gaechter, from the Edda)

• Reciprocity

The concept of reciprocity is a rather straightforward one. Reciprocity deals with actions that are simply responses, not necessarily actions that will lead to future material gains. If an individual acts cooperatively and kindly towards another, positive reciprocity indicates that this action will be met with a response of an equally kind magnitude.

• Retaliation

On the opposite side of the spectrum is the concept of retaliation, sometimes referred to as negative reciprocity. In the event that an individual is met with an absurdly unfair offer, or suspects a negative action on the part of another, he will retaliate and punish that individual for engaging in such behavior - even if that retaliatory action is detrimental to himself!

It is also quite important to note here that there "seems to be an emerging consensus that the propensity to punish harmful behavior is stronger than the propensity to reward friendly behavior." (Offerman, Charness and Rabin - as noted by Fehr and Gaechter)

Certain games (such as the ultimatum game, trust game, and public-good game) in which a sum of money is to be divided and distributed, players may base their decisions on the reciprocal actions a fellow player may take. Fehr and Gaechter, for instance, claim that there are two types of people - those that are reciprocal actors and those who are self-interested. If a player knows that his opponent will respond with an act of retaliation (or punishment) for his hypothetical selfish action, he may decide to avert the selfish decision and act cooperatively instead.

Reciprocity and Contracts

• Employment contracts are frequently categorized as incomplete - thus opening up opportunities for employees to "shirk" while on the job (i.e. satisfying their Ebay web-surfing cravings or looking up the latest celebrity gossip). Because certain criteria are not specified in the worker's contract, performance motivation and efficiency suffers as a result.

• If employers are given the opportunity to use reciprocity (or retaliation) in terms of bonus packages and/or acts of generosity, workers tend to increase their effort levels while at work. Although the consideration of reciprocity does not completely eliminate "shirking," it reduces the amount of time spent during the inevitable and occasional "shirk."