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Finitely repeated games with social preferences

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  • Jörg Oechssler

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Abstract

A well-known result from the theory of finitely repeated games states that if the stage game has a unique equilibrium, then there is a unique subgame perfect equilibrium in the finitely repeated game in which the equilibrium of the stage game is being played in every period. Here I show that this result does in general not hold anymore if players have social preferences of the form frequently assumed in the recent literature, for example in the inequity aversion models of Fehr and Schmidt (Quartely Journal of Economics 114:817–868, 1999 ) or Bolton and Ockenfels (American Economic Review 100:166–193, 2000 ). In fact, repeating the unique stage game equilibrium may not be a subgame perfect equilibrium at all. This finding should have relevance for all experiments with repeated interaction, whether with fixed, random or perfect stranger matching. Copyright Economic Science Association 2013

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Bibliographic Info

Article provided by Springer in its journal Experimental Economics.

Volume (Year): 16 (2013)
Issue (Month): 2 (June)
Pages: 222-231

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Handle: RePEc:kap:expeco:v:16:y:2013:i:2:p:222-231

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Web page: http://www.springerlink.com/link.asp?id=102888

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Keywords: Social preferences; Finitely repeated games; Inequity aversion; ERC; C72; C73;

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References

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  1. Sabrina Teyssier, 2008. "Experimental Evidence on Inequity Aversion and Self-Selection between Incentive Contracts," Post-Print halshs-00303727, HAL.
  2. Antonio Cabrales & Rosemarie Nagel & José Rodríguez Mora, 2012. "It is Hobbes, not Rousseau: an experiment on voting and redistribution," Experimental Economics, Springer, vol. 15(2), pages 278-308, June.
  3. Loukas Balafoutas & Martin G. Kocher & Louis Putterman & Matthias Sutter, 2010. "Equality, equity, and incentives: An experiment," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 10-13, School of Economics, University of East Anglia, Norwich, UK..
  4. Brown, Martin & Falk, Armin & Fehr, Ernst, 2003. "Relational Contracts and the Nature of Market Interactions," IZA Discussion Papers 897, Institute for the Study of Labor (IZA).
  5. Matthias Sutter & Stefan Haigner & Martin Kocher, . "Choosing the carrot or the stick? ? Endogenous institutional choice in social dilemma situations," Working Papers 2008-07, Faculty of Economics and Statistics, University of Innsbruck.
  6. Engelmann,Dirk & Strobel,Martin, 2002. "Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments," Research Memorandum 015, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  7. Cohn, Alain & Fehr, Ernst & Herrmann, Benedikt & Schneider, Frédéric, 2011. "Social Comparison in the Workplace: Evidence from a Field Experiment," IZA Discussion Papers 5550, Institute for the Study of Labor (IZA).
  8. Rabin, Matthew & Weizsäcker, Georg, 2007. "Narrow Bracketing and Dominated Choices," IZA Discussion Papers 3040, Institute for the Study of Labor (IZA).
  9. Huck, Steffen & Muller, Wieland & Normann, Hans-Theo, 2001. "Stackelberg Beats Cournot: On Collusion and Efficiency in Experimental Markets," Economic Journal, Royal Economic Society, vol. 111(474), pages 749-65, October.
  10. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
  11. Trautmann, Stefan T., 2009. "A tractable model of process fairness under risk," Journal of Economic Psychology, Elsevier, vol. 30(5), pages 803-813, October.
  12. Fudenberg, Drew & Levine, David K., 2012. "Fairness, risk preferences and independence: Impossibility theorems," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 606-612.
  13. John Duffy & Felix Munoz-Garcia, 2009. "Patience or Fairness? Analyzing Social Preferences in Repeated Games," Working Papers 383, University of Pittsburgh, Department of Economics, revised May 2009.
  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. David Masclet & Marie-Claire Villeval, 2008. "Punishment, inequality, and welfare: a public good experiment," Social Choice and Welfare, Springer, vol. 31(3), pages 475-502, October.
  16. Charness, Gary B & Rabin, Matthew, 2001. "Understanding Social Preferences With Simple Tests," University of California at Santa Barbara, Economics Working Paper Series qt0dc3k4m5, Department of Economics, UC Santa Barbara.
  17. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, December.
  18. Drew Fudenberg & David K Levine, 2011. "Fairness and Independence: An Impossibility Theorem," Levine's Working Paper Archive 786969000000000001, David K. Levine.
  19. Rubinstein Ariel & Wolinsky Asher, 1995. "Remarks on Infinitely Repeated Extensive-Form Games," Games and Economic Behavior, Elsevier, vol. 9(1), pages 110-115, April.
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Cited by:
  1. Riedl Arno & Rohde Ingrid M.T. & Strobel Martin, 2011. "Efficient Coordination in Weakest-Link Games," Research Memorandum 057, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. John Duffy & Félix Muñoz-García, 2012. "Patience or Fairness? Analyzing Social Preferences in Repeated Games," Games, MDPI, Open Access Journal, vol. 3(1), pages 56-77, March.
  3. Nikiforakis, Nikos & Oechssler, Jörg & Shah, Anwar, 2012. "Hierarchy, Coercion, and Exploitation: An Experimental Analysis," Working Papers 0530, University of Heidelberg, Department of Economics.
  4. Gürtler, Marc & Gürtler, Oliver, 2012. "Inequality aversion and externalities," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 111-117.

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