Gift-exchange game

Type of game theory

The gift-exchange game, also commonly known as the gift exchange dilemma, is a common economic game introduced by George Akerlof and Janet Yellen to model reciprocacy in labor relations. The gift-exchange game simulates a labor-management relationship execution problem in the principal-agent problem in labor economics. The simplest form of the game involves two players – an employee and an employer. The employer first decides whether they should award a higher salary to the employee. The employee then decides whether to reciprocate with a higher level of effort due to the salary increase or not. Like trust games, gift-exchange games are used to study reciprocity for human subject research in social psychology and economics. If the employer pays extra salary and the employee puts in extra effort, then both players are better off than otherwise. The relationship between an investor and an investee has been investigated as the same type of a game.

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