Economists have long cited “prisoner’s dilemma” experiments to argue that altruism, trust and cooperation are inconsequential in real-life markets. To be rational is to be selfish. Social reciprocity is for suckers. Such experiments were always rigged in their theoretical design because test subjects had little opportunity actually to communicate with each other and develop trust over time. But the fallacies of the prisoner’s dilemma paradigm – and therefore the economics they supposedly endorse – are now under siege as never before.
Howard Rheingold, author of Smart Mobs and long-time analyst of online communities, is offering a course at Stanford University from January 5 to March 16 called “ Toward a Literacy of Cooperation.” As he writes in the course overview: “…scientists are beginning to see how cooperation actually works in biology, sociology, mathematics, psychology, economics, computer science and political science. And in the last two decades, we’ve seen a variety of new challenges to business models that stress competition over customers, resources and ideas.
Rheingold cites the success of Google and Amazon, which facilitates the collective actions of millions of web publishers; Wikipedia and open source software; and other forms of technology-assisted cooperation such as social software, sharing economies and prediction markets.
The ten-part lecture series will feature some excellent speakers: Peter Kollock, economic sociologist and expert on online communities; Steven Weber, the UC Berkeley political scientist and author of The Success of Open Source Software Paul Hartzog, expert on networked governance and complexity theory; and Bernardo Huberman of Hewlett Packard Laboratories. It’s well worth checking out the syllabus for the course even if you can’t attend; the organizers hope to videostream the lectures.
Another rich repository of information about cooperation in the online world can be found at the website of University of Maryland Professor Chrysanthos Dellarocas. The good professor studies the use of online reputation mechanisms as a low-cost trust building device in electronic markets. His website has an excellent collection of papers on reputation mechanisms in the online world. Here is his overview of why reputation mechanisms are a significant development in economics:
“Recent advances in information technology are causing us to rethink many institutions that shape relationships in our everyday life. One important area where information technology can have a profound impact are the institutions that promote trust and cooperation among economic agents. The emergence of online communities has enabled the creation of low cost reputation networks of global reach.
“Online reputation mechanisms have emerged as a viable alternative to the more established institutions for building trust (such as formal contracts) in electronic environments where such contractual guarantees cannot be efficiently enforced. On eBay, for instance, an online feedback mechanism that encourages buyers and sellers to rate one another seems to have succeeded in encouraging cooperative behavior in an otherwise very risky trading environment.
“The potential applications of online reputation mechanisms go beyond the relatively narrow domain of trust building in electronic marketplaces. The appeal of reputation mechanisms is that, when they work, they facilitate cooperation without the need for costly enforcement institutions. They have, therefore, the potential of providing more economically efficient outcomes in a wide range of moral hazard settings where societies currently rely on the threat of litigation in order to induce cooperation.”
The growth of online reputation systems is a key reason that the commons will surge in the coming years. It explains lots of online behavior better than market orthodoxy.