Theorists have long studied the fundamental problem that cooperative, socially efficient outcomes generally cannot be supported as equilibria in finite games. The puzzle is the occurrence of cooperative behavior in the absence of immediate incentives to engage in such behavior. For example, in two-person bargaining experiments, where noncooperative behavior does not support efficient outcomes, we observe more cooperative behavior and greater efficiency than such environments are expected to produce. Similarly, in public good experiments with group size varying from 4 to 100, people tend to achieve much higher payoff levels than predicted by noncooperative theory. Moreover, examples of the achievement of cooperative behavior by decentralized means have a long history in the human experience. Anthropological and archeological evidence suggests that sharing behavior is ubiquitous in tribal cultures that lack markets,monetary systems, or other means of storing and redistributing wealth (see, e.g., Cosmides and Tooby, 1987, 1989; Isaac, 1978; Kaplan and Hill, 1985b; Tooby and De Vore, 1987; Trivers, 1971).

In this paper we draw together theoretical and experimental evidence from game theory, evolutionary psychology, and experimental economics that provides the basis for developing a reciprocity framework for understanding the persistence of cooperative outcomes in the face of contrary individual incentives. Repeated game theory with discounting or infinite time horizons allows for cooperative solutions but does not yield conditions for predicting them (Fudenberg and Tirole, 1993). Recent research in evolutionary psychology (Cosmides and Tooby, 1987, 1989, 1992) suggests that humans may be evolutionarily predisposed to engage in social exchange using mental algorithms that identify and punish cheaters.