Over 400,000 people visited Farnam Street last month to learn how to make better decisions, create new ideas, and avoid stupid errors. With more than 98,000 subscribers to our popular weekly digest, we've become an online intellectual hub. To learn more about we what do, start here.

To build a cooperative society, is it better to punish or reward?

The authors of the study below discovered that opportunism makes both types of incentives profitable, but they have different effects. In our model, rewards are very effective in increasing cooperation but, ironically, increased cooperation makes rewards expensive. At some point punishment might be more efficient.

Social incentives can either be positive (rewards) or negative (punishments), and a society must decide which combination to use to achieve the greatest efficiency, or the highest level of cooperation at the lowest cost.

results show how a population can evolve to become dominated by individuals who cooperate by default (that is, they cooperate unless they know they can get away with uncooperative behavior) when faced with negative incentives.
As the researchers explain in their study, the efficiency in terms of a benefit-to-cost ratio of the two types of incentives depends on the circumstances. In a society where most people cooperate, then it will be costly to reward them all, while a society in which most people defect would pay a high price for trying to punish them all. So the obvious way to transform an uncooperative population into a cooperative one would be to first provide positive incentives, and later punish the few remaining individuals who refuse to be swayed.
“In the last 10 years, there has been an intensive discussion about whether and how (human) cooperation can be promoted by offering incentives,” Hilbe told PhysOrg.com. “Especially the effect of punishment is heavily disputed; some researchers argue that the extensive use of punishment could lead to a downfall of overall welfare (for example, as punishment might provoke counter-punishment). Our study is one of the first examining the interplay of both types of incentives. We found that opportunism makes both types of incentives profitable, but they have different effects. In our model, rewards are very effective in increasing cooperation but, ironically, increased cooperation makes rewards expensive. At some point punishment might be more efficient.

Source