Economists long considered money illusion to be largely irrelevant. Here we show, however, that money illusion has powerful effects on equilibrium selection. If we represent payoffs in nominal terms, choices converge to the Pareto inefficient equilibrium; however, if we lift the veil of money by...

Some of the most fundamental questions concerning our evolutionary origins, our social relations, and the organization of society are centred around issues of altruism and selfishness. Experimental evidence indicates that human altruism is a powerful force and is unique in the animal world....

In experiments, animals often prefer smaller, immediate rewards over larger rewards that are deferred — thus failing to maximize their total gain. Many people exhibit similar behaviour.

Human cooperation is an evolutionary puzzle. Unlike other creatures, people frequently cooperate with genetically unrelated strangers, often in large groups, with people they will never meet again, and when reputation gains are small or absent. These patterns of cooperation cannot be explained...

This paper provides strong evidence challenging the self-interest assumption that dominates the behavioral sciences and much evolutionary thinking. The evidence indicates that many people have a tendency to voluntarily cooperate, if treated fairly, and to punish non-cooperators. We call this...

One of the most basic questions in economics concerns the effects of competition on market prices. We show that the neglect of both fairness concerns and decision errors prevents a satisfactory understanding of how competition affects prices. We conducted experiments which demonstrate that the...

In this chapter we provide a selective survey of experiments to investigate the potential of social motivations in explaining labour market phenomena. We argue that laboratory experiments are a useful instrument to explore issues in labour market theory and personnel economics. Our starting...

We provide experimental evidence that contractual incompleteness, i.e., the absence of third party enforcement of workers’ effort or the quality of the good traded, causes a fundamental change in the nature of market interactions. If contracts are complete the vast majority of trades are...