Learning and Peer Effects

We experimentally show that current models of reciprocity are incomplete in a systematic way using a new variant of the ultimatum game that provides second-movers with a marginal-cost-free punishment option. For a substantial proportion of the population, the degree of rst-mover unkindness determines the severity of punishment actions even when marginal costs are absent. The proportion of these subjects strongly depends on a treatment variation: higher xed costs of punishment lead to harsher responses. The fractions of purely selfish and inequity-averse participants are small and stable. Among the variety of reciprocity models, only one accommodates (rather than predicts) parts of our ndings. The treatment e ect is unaccounted for. We discuss ways of incorporating our ndings into the existing models.