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Over the years, economic theory has generally held that self-interest predominantly governs the behavior of individuals in small groups. However, recent experiments have suggested a situation less cut and dried: some experimental subjects, they indicate, are willing to reward good behavior by their peers and to punish bad behavior, even at some cost to themselves. Now Florian Herold, an assistant professor of managerial economics and decision sciences at the Kellogg School of Management, has developed a theoretical model that clarifies those findings. The model, he says, explains why rewarding and punishing behaviors can not only coexist with selfish behavior, but also induce cooperative behavior in small groups.
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