IFREE-Sponsored Lecture Series at ESI

Gabriele Camera, Ph.D.
Oct. 28th, 2011

The coordination value of monetary exchange: Experimental evidence

"My research studies rules of behavior and decision mechanisms in groups of people who do not know each other, may not trust each other and may have incentives to behave opportunistically. A primary goal is to identify behavioral elements and institutions that can emerge endogenously to promote cooperation and to discourage opportunistic behavior. The methodology is theoretical & experimental. I construct laboratory economies populated by strangers, i.e., subjects who interact in pairs through a process of random encounters; their identities are private information and their past actions are unknown. In each encounter, subjects have the opportunity to cooperate by sustaining a cost in order to benefit their opponent, or to defect by choosing to sustain no cost and to give no benefit. Subjects-primarily undergraduate students at Purdue University-face an indefinite sequence of such interactions. Multiple outcomes are theoretically possible, with different degrees of efficiency.

The proposed research offers new insights about cooperation in groups of individuals who are socially distant and are involved in long-term interactions. Systematic laboratory studies of the type described above are uncommon in the literature. This research can help us better understand how to design institutions to govern economic transactions in "anonymous societies." The data gathered from this research can be used to validate theories of decentralized trade that form the basis of widely-used macroeconomic models. This research contributes also to areas other than economics, such as political science, sociology, accounting, management and organizational behavior."

Bio:
Gabriele Camera is Professor of Economics at Purdue University. He earned his Ph.D. in Economics from the University of Iowa. His research spans several areas: macroeconomics, monetary economics, economic theory and experimental economics. Broadly speaking, his research focuses on studying economic outcomes and policy prescriptions in societies where interactions take place among individuals who may not know each other, may not trust each other, and may be unable to establish long-term relationships. His research has been published in a variety of high-profile academic journals. He is a Fulbright Scholar, and has received several different research and teaching awards, including the Dean's Teaching Award at the University of Iowa, and the Faculty Scholar Award from Purdue University. He is an associate editor of two academic journals, Economic Theory and Annals of Finance.

Abstract:
Under what conditions can cooperation be sustained in a network of strangers? Here we study the role of institutions and uncover a new behavioral foundation for the use of monetary systems. In an experiment, anonymous subjects could cooperate or defect in bilateral random encounters. This sequence of encounters was indefinite; hence multiple equilibria were possible, including full intertemporal cooperation supported by a social norm based on community punishment of defectors. We report that such social norm did not emerge. Instead, the availability of intrinsically worthless tokens favored the coordination on intertemporal cooperation in ways that networks of strangers were unable to achieve through social norms.

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