Many experimental studies indicate that people are motivated by reciprocity. Rabin [Amer. Econ. Rev. 83 (1993) 1281] develops techniques for incorporating such concerns into game theory and economics. His theory is developed for normal form games, and he abstracts from information about the sequential structure of a strategic situation. We develop a theory of reciprocity for extensive games in which the sequential structure of a strategic situation is made explicit, and propose a new solution concept-sequential reciprocity equilibrium-for which we prove an equilibrium existence result. The model is applied in several examples, and it is shown that it captures very well the intuitive meaning of reciprocity as well as certain qualitative features of experimental evidence.

We examine experimentally the impact of communication on trust and cooperation. Our design admits observation of promises, lies, and beliefs. The evidence is consistent with people striving to live up to others' expectations so as to avoid guilt, as can be modeled using psychological game theory. When players exhibit such guilt aversion, communication may influence motivation and behavior by influencing beliefs about beliefs. Promises may enhance trustworthy behavior, which is what we observe. We argue that guilt aversion may be relevant for understanding strategic interaction in a variety of settings, and that it may shed light on the role of language, discussions, agreements, and social norms in these contexts. Copyright The Econometric Society 2006.

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The focus for the Centre is research into individual and strategic decision-making using a combination of theoretical and experimental methods. On the theory side, members of the Centre investigate individual choice under uncertainty, cooperative and non-cooperative game theory, as well as theories of psychology, bounded rationality and evolutionary game theory. Members of the Centre have applied experimental methods in the fields of public economics, individual choice under risk and uncertainty, strategic interaction, and the performance of auctions, markets and other economic institutions. Much of the Centre's research involves collaborative projects with researchers from other departments in the UK and overseas. Abstract:Psychological game theory can provide rational-choice-based framing effects; frames influence beliefs, beliefs influence motivations. We explain this theoretically and explore empirical relevance experimentally. In a 2×2 design of one-shot public good games we show that frames affect subject's first-and second-order beliefs, and contributions. From a psychological gametheoretic framework we derive two mutually compatible hypotheses about guilt aversion and reciprocity under which contributions are related to second-and first-order beliefs, respectively. Our results are consistent with either.Keywords: framing; psychological game theory; guilt aversion; reciprocity; public good games; voluntary cooperation JEL codes: C91, C72, D64, Z13.Acknowledgments: This paper is part of the MacArthur Foundation Network on Economic Environments and the Evolution of Individual Preferences and Social Norms. Support from the EU-TMR Research Network ENDEAR (FMRX-CT98-0238) and the University of St. Gallen Grundlagenforschungsfonds is gratefully acknowledged. Part of the research was done when Martin Dufwenberg visited Bonn University on a F. W. Bessel Research Award from the Alexander-von-Humboldt Foundation and part when he later on was supported by the NSF. Simon Gächter is grateful for the hospitality he enjoyed at the Institute of Advanced Studies at Hebrew University (Jerusalem) while working on this paper. We thank Christian Thöni for very helpful research assistance. We are grateful for comments from Pierpaolo Battigalli, Colin Camerer, Gary Charness, Glenn Harrison, Eva Poen, Lisa Rutström, Arthur Schram, Martin Sefton, Jean-Robert Tyran, Manuela Vieth, and many seminar participants. Finally, our thanks go to an anonymous referee for many helpful comments and suggestions.