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Information value and externalities in reputation building

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Author Info

  • Bolton, Gary E.
  • Ockenfels, Axel
  • Ebeling, Felix

Abstract

In sequential equilibrium theory, reputation building is independent of whether the reputation builder is matched with one long-run partner or a series of short-run "strangers". We observe, however, that reputation builders are significantly more challenged by long-run players in both laboratory chain store and buyer-seller games. Reputation builder behavior is more predictable than implied by equilibrium, and so reputation information has more economic value than implied by equilibrium. For short-run players, this reputation information value is an externality. For long-run players, the value of the information is internalized and so they have greater incentive to challenge the reputation builder.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 29 (2011)
Issue (Month): 1 (January)
Pages: 23-33

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Handle: RePEc:eee:indorg:v:29:y:2011:i:1:p:23-33

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Web page: http://www.elsevier.com/locate/inca/505551

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References

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  1. Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Mark Walker & John Wooders, 2001. "Minimax Play at Wimbledon," American Economic Review, American Economic Association, vol. 91(5), pages 1521-1538, December.
  3. Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
  4. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  5. Robert H. Porter, 1992. "The Role of Information in U.S. Offshore Oil and Gas Lease Auctions," NBER Working Papers 4185, National Bureau of Economic Research, Inc.
  6. Schmidt, Klaus M., 1993. "Reputation and Equilibrium Characterization in Repeated Games with Conflicting Interests," Munich Reprints in Economics 3395, University of Munich, Department of Economics.
  7. D. Fudenberg & David K. Levine, 1989. "Reputation and Equilibrium Selection in Games with a Patient Player," Levine's Working Paper Archive 508, David K. Levine.
  8. Brandts, J. & Figueras, N., 1997. "An Exploration of Reputation Formation in Experimental Games," UFAE and IAE Working Papers 404.97, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  9. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
  10. McKelvey, Richard D & Palfrey, Thomas R, 1992. "An Experimental Study of the Centipede Game," Econometrica, Econometric Society, vol. 60(4), pages 803-36, July.
  11. Cripps, Martin W. & Schmidt, Klaus M. & Thomas, Jonathan P., 1996. "Reputation in Perturbed Repeated Games," Journal of Economic Theory, Elsevier, vol. 69(2), pages 387-410, May.
  12. Cripps, Martin W & Thomas, Jonathan P, 1995. "Reputation and Commitment in Two-Person Repeated Games without Discounting," Econometrica, Econometric Society, vol. 63(6), pages 1401-19, November.
  13. Neral, John & Ochs, Jack, 1992. "The Sequential Equilibrium Theory of Reputation Building: A Further Test," Econometrica, Econometric Society, vol. 60(5), pages 1151-69, September.
  14. Andreoni, J. & Miller, J.H., 1991. "Rational Cooperative in the Finitely Repeated Prisoner's Dilemma: Experimental Evidence," Working papers 9102, Wisconsin Madison - Social Systems.
  15. Camerer, Colin & Weigelt, Keith, 1988. "Experimental Tests of a Sequential Equilibrium Reputation Model," Econometrica, Econometric Society, vol. 56(1), pages 1-36, January.
  16. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September.
  17. Shachat, Jason M., 2002. "Mixed Strategy Play and the Minimax Hypothesis," Journal of Economic Theory, Elsevier, vol. 104(1), pages 189-226, May.
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Citations

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Cited by:
  1. Gary Bolton & Ben Greiner & Axel Ockenfels, 2013. "Engineering Trust: Reciprocity in the Production of Reputation Information," Management Science, INFORMS, vol. 59(2), pages 265-285, January.
  2. Bolton, Gary E. & Ockenfels, Axel, 2012. "Behavioral economic engineering," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 665-676.

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