People frequently experience anger and a desire to retaliate against people who have harmed them directly. They occasionally respond similarly when people harm their friends and kin. Here, we present a psychological model, grounded in the computation of costs, benefits, and welfare interdependencies, which we call the net-cost model, to explain these phenomena. After showing how the model can explain anger and the desire to retaliate in two-party interactions, we show how the same theoretical apparatus offers predictions about the conditions under which people will intervene in other people's dyadic conflicts. This model takes advantage of a concept called the welfare tradeoff ratio. Welfare tradeoff ratios also feature prominently in the recalibrational theory of anger, but the model we propose here uses them in a different way. We review several lines of evidence that lend empirical support for the net-cost model, especially highlighting research on third-party punishment and anger in the context of friendships and other close relationships.