Abstract
We theoretically and experimentally study the evolution of strategies reflecting different moral judgments under indirect reciprocity. We fully characterize the asymptotically stable sets of rest points. In all cooperative rest points multiple strategies coexist. This offers an explanation for the heterogeneity in moral judgments among humans. The behavior prescribed by the predicted strategies can rationalize the design of real-life reputation systems, which are set up to resolve problems of moral hazard. In our laboratory experiment, we find that more than 75% of participants play strategies that belong to the predicted set of strategies.
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