Theory-of-mind mechanism in personal exchange

We postulate a system of mental modules necessary for personal exchange. This system includes a 'good-will' accounting system which tracks trading partners together with a 'mind-reading' system which attributes mental-states to partners in order to achieve greater expected gains from exchange. Our hypothesis is that humans have a propensity to establish long-term reputations as cooperators and non-defectors, and consequently believe that their anonymous counterparts in our experiments are like-minded persons. We test whether theory-of-mind mechanism (ToMM) is activated during strategic interactions in games with underlying reciprocity responses by examining the within-group behavior of two different subject pools (assistant professors of economics and undergraduates). We find that assistant professors take longer, trust less, and do worse in terms of final payoffs than undergraduates. However, within each group levels of trust are well matched with the resulting levels of reciprocity. This suggests that individuals are quite successful in reading the intentions of their paired in-group partner. In contrast, when members of these groups play a computer with a fixed (known) strategy, behavior looks identical across groups. Our interpretation is that ToMM is activated when shared intentions are relevant to the decision of whether or not to cooperate, and that ToMM is inactive when shared intentions are not relevant.