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Indirect reciprocity is a reputation-based mechanism for cooperation in social dilemma situations when individuals do not repeatedly meet. The conditions under which cooperation based on indirect reciprocity occurs have been examined in great details. Most previous theoretical analysis assumed for mathematical tractability that an individual possesses a binary reputation value, i.e., good or bad,...
Suppose that gifts are private information, only known to donor and donee, while bequests are public. Also suppose that parents care about the reputation that their bequest behavior will give them and that reputation deteriorates with the difference in amounts inherited. Then the optimal choice of altruistic parents is compensatory gifts and equal bequests. This is also what data show.
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