Replicator dynamics of reward & reputation in public goods games

Public goods games have become the mathematical metaphor for game theoretical investigations of cooperative behavior in groups of interacting individuals. Cooperation is a conundrum because cooperators make a sacrifice to benefit others at some cost to themselves. Exploiters or defectors reap the benefits and forgo costs. Despite the fact that groups of cooperators outperform groups of defectors, Darwinian selection or utilitarian principles based on rational choice should favor defectors. In order to overcome this social dilemma, much effort has been expended for investigations pertaining to punishment and sanctioning measures against defectors. Interestingly, the complementary approach to create positive incentives and to reward cooperation has received considerably less attention despite being heavily advocated in education and social sciences for increasing productivity or preventing conflicts. Here we show that rewards can indeed stimulate cooperation in interaction groups of arbitrary size but, in contrast to punishment, fail to stabilize it. In both cases, however, reputation is essential. The combination of reward and reputation result in complex dynamics dominated by unpredictable oscillations. (C) 2010 Elsevier Ltd. All rights reserved.