Elgar original reference
Edited by Luigino Bruni and Stefano Zamagni
Chapter 2: Altruistic reciprocity
By a self-regarding actor we mean an individual who maximizes his own payoff in social interactions. A self-regarding actor thus cares about the behavior of and payoffs to the other individuals only insofar as these impact his own payoff. The term ‘self-regarding’ is more accurate than ‘self-interested’ because an other-regarding individual is still acting to maximize utility and so can be described as self-interested. For instance, if I get great pleasure from your consumption, my gift to you may be self-interested, even though it is surely other-regarding. We can avoid confusion (and much pseudo-philosophical discussion) by employing the self-regarding/ other-regarding terminology. One major result of behavioral game theory is that when modeling market processes with well-specified contracts, such as double auctions (supply and demand) and oligopoly, game-theoretic predictions assuming self-regarding actors are accurate under a wide variety of social settings (see Kachelmaier and Shehata, 1992; Davis and Holt, 1993). The fact that self-regarding behavior explains market dynamics lends credence to the practice in neoclassical economics of assuming that individuals are self-regarding. However, it by no means justifies ‘Homo economicus’ because many economic transactions do not involve anonymous exchange.
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