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The power of conventions: A theory of social preferences

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  • Li, Jing

Abstract

People often act as if they care about others' welfare as well as their own (i.e. have "social preferences"). One plausible assumption is that people have preferences for social implications of their actions, determined by exogenous "conventions", in addition to the material consequences of actions. I construct games with conventions using the psychological games framework developed in Geanakoplos et al. [Geanakoplos, J., Pearce, D., Stacchetti, E., 1989. Psychological games and sequential rationality. Games and Economic Behavior 1, 60-79]. With a notion of distributional convention combining efficiency and fairness, I show equilibrium behavior reflects social preferences. The model yields tight and testable predictions consistent with a large body of experimental results, is parsimonious, and is suggestive of further studies, both experimentally and theoretically.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 65 (2008)
Issue (Month): 3-4 (March)
Pages: 489-505

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Handle: RePEc:eee:jeborg:v:65:y:2008:i:3-4:p:489-505

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  1. Armin Falk & Urs Fischbacher, 2001. "A Theory of Reciprocity," CESifo Working Paper Series 457, CESifo Group Munich.
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  8. Cooper, Russell & DeJong, Douglas V. & Forsythe, Robert & Ross, Thomas W., 1996. "Cooperation without Reputation: Experimental Evidence from Prisoner's Dilemma Games," Games and Economic Behavior, Elsevier, vol. 12(2), pages 187-218, February.
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  10. Brandts, J. & Sola, C., 1998. "Reference Points and Negative Reciprocity in Simple Sequential Games," UFAE and IAE Working Papers 425.98, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  11. M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
  12. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences With Simple Tests," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 817-869, August.
  13. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
  14. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  15. Dawes, Robyn M & Thaler, Richard H, 1988. "Anomalies: Cooperation," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 187-97, Summer.
  16. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages S285-300, October.
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Cited by:
  1. Battigalli, Pierpaolo & Dufwenberg, Martin, 2009. "Dynamic psychological games," Journal of Economic Theory, Elsevier, vol. 144(1), pages 1-35, January.
  2. Felix Bierbrauer & Nick Netzer, 2012. "Mechanism design and intentions," ECON - Working Papers 066, Department of Economics - University of Zurich, revised Apr 2014.

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