Gift-exchange game
Gift exchange games have been used to study economic and social phenomena such as labor contracts, market transactions,[5] strike and the decline of unionization.
[6] The gift-exchange theory also incorporates a social component, where homogenous agents who are employed with an equivalent wage level will exert greater effort.
The first examination of this component is referred to as the fair uniform-wage hypothesis, where experiments establish the significant efficiency premium of uniform wages.
[8][9] Like in trust games, game-theoretic solution for rational players predicts that employees’ effort will be minimum for one-shot and finitely repeated interactions.
In the gift-exchange game, the choices of all players are interdependent, and the social norms of reciprocity incentivize participants to act in ways that benefit the group as a whole.
In this way, the influence of expectations of both sides on the "long-term future" is excluded, and the choice of the level of effort of "employees" is completely self-conscious.
According to the traditional economic view, employees will be willing to accept any wage greater than 0, and provide the minimum level of effort after receiving the salary.
The experiment of charness (2000, JEBO)[21] wanted to explore what would happen if the benefit of high wages was not given by the employer but a random result or a third party.
The results of this experiment are as follows: (1) if wages are generated randomly, employees usually give extra efforts to show "fairness" or compensation, considering that they are after all the employer's money.
Gneezy and List (2006, Econometrica)[22] were two of the first economists to investigate whether similar results found in the previous laboratory experiments could be replicated in a field setting.
They did so by conducting two separate experiments, each involving a number of volunteer participants who were required to perform a specific task for six hours in total.
[23] While these results are inconsistent with previous laboratory finds, they endorse one feature of "reciprocal behaviour", that is, as time goes on, preferential treatment will be taken for granted, thus reducing the willingness of employees to supply labour.
They found that lack of enforcement was not the only reason to explain employees' reluctance to work hard, so the concept of 'relative reciprocal' was creatively introduced.
The paragraph also notes that it is difficult to create models of human behavior without access to the hidden variables that determine the players' choices.
If unions and other labor organizations step in to coordinate, employees may face increased employment risks in the absence of success in reducing free-rider behavior.
[6] A recent study in 2023 showed that in the gift-exchange game of labor relations, employees' costless and non-binding voice leads firms to reduce the actual workload in agreed contracts rather than increase wages.
[28] Dirk Engelmann and Andreas Ortmann’s [29] study: ‘The Robustness Of Laboratory Gift exchange: A Reconsideration’ took a subject pool of students from economics and business courses at the University of Berlin and the Institute For Empirical Research In Economics at the University of Zurich and had participants randomly selected into a employer or employee category.
Engelmann suggested that gift-exchange is highly sensitive to changes in the parameters of the game (parametrization), the framing effect and anonymity.
[31] An example of reciprocity due to social norms was a field study conducted by the University of Bon to investigate the gift exchange theory in a natural setting.
Thus indicating that the gift exchange game may have multiple equilibria, dependant on expectations, beliefs and if social preferences are two-sided.
[33] Reciprocity within the gift exchange game shows how social interaction play a large role in what are considered economic decisions and is the factor that balances and maintains the stability between give and take.
[34] The gift exchange model is used to explain workers' effort and wages provided by firms in the real world, especially involuntary unemployment.
Unlike what is depicted in the simple model above, in real life, employees may exceed the minimum work required[35] and firms may pay more than the market-clearing wage.
This outcome is dependent on the employee exhibiting "neutral" or "warm" feelings towards their employer such that their expected utility increases with the attention they receive.
Rather than contradict, this model supplements traditional game-exchange theory by demonstrating in a real world setting, managers have socioemotional tools at their disposal that may be preferred to a monetary gift.
A study conducted by Evesteves-Sorenson and Macera (2013) aimed to investigate removing any theoretical factors that could be “dampening gift exchange in the field”.
Accounting for these factors and subsequently implementing a field experiment to remove them, the study’s results found no evidence to support gift exchange in the work place.
While conflicting results do degrade the reliability of the application of the gift exchange game, it is important to note that it still provides valuable insight into employee and employer behavior.
An experiment conducted by Maximiano, Sloof and Sonnemans (2013) focused on creating a more complex laboratory environment to allow for further extrapolation of the results into real world relationships found in the labour market.
The classical gift-exchange game was manipulated to mimic a trilateral relationship where the firm is controlled by a manager but owned by a shareholder.
