Figure 1 : Action rules, social norms and the story of Alice and Bob.

From: How to treat those of ill repute

Figure 1

Bob meets Alice and learns whether Alice has a good or a bad reputation. On the basis of that, Bob may either help (cooperate), refuse help (defect) or refuse help and, in addition, decrease Alice's wealth (punish). How Bob reacts is specified in his action rule. Bob's own reputation depends on how society's social norm evaluates Bob's reaction to Alice's reputation. The social norm 'stern-judging' evaluates cooperation with good as good and punishment of bad as bad; the social norm 'shunning' evaluates cooperation with good as good and punishment of bad as good. Each social norm specifies which reputation to assign for each of the 6 possible scenarios (3 actions of Bob for 2 reputations of Alice). This leads to 26 = 64 social norms.