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Finitely repeated games with social preferences

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  • Oechssler, Jörg

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

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0512.

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Date of creation: 11 Apr 2011
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Handle: RePEc:awi:wpaper:0512

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Keywords: social preferences; finitely repeated games; inequity aversion; ERC;

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References

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  1. Matthew Rabin & Georg Weizsacker, 2009. "Narrow Bracketing and Dominated Choices," American Economic Review, American Economic Association, vol. 99(4), pages 1508-43, September.
  2. Loukas Dalafoutas & Martin G. Kocher & Louis Putterman & Matthias Sutter, 2010. "Equality, Equity and Incentives: An Experiment," Working Papers 2010-13, Brown University, Department of Economics.
  3. 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.
  4. Drew Fudenberg & David K Levine, 2011. "Fairness and Independence: An Impossibility Theorem," Levine's Working Paper Archive 786969000000000001, David K. Levine.
  5. Alain Cohn & Ernst Fehr & Benedikt Herrmann & Frédéric Schneider, 2011. "Social comparison in the workplace: evidence from a field experiment," ECON - Working Papers 007, Department of Economics - University of Zurich.
  6. Sabrina Teyssier, 2008. "Experimental Evidence on Inequity Aversion and Self-Selection between Incentive Contracts," Post-Print halshs-00303727, HAL.
  7. Charness, Gary & Rabin, Matthew, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt3d04q5sm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  8. Trautmann, Stefan T., 2009. "A tractable model of process fairness under risk," Journal of Economic Psychology, Elsevier, vol. 30(5), pages 803-813, October.
  9. Martin Brown & Armin Falk & Ernst Fehr, 2004. "Relational Contracts and the Nature of Market Interactions," Econometrica, Econometric Society, vol. 72(3), pages 747-780, 05.
  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. Huck, Steffen & Müller, Wieland & Normann, Hans-Theo, 1999. "Stackelberg beats Cournot: On collusion and efficiency in experimental markets," SFB 373 Discussion Papers 1999,32, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  12. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, December.
  13. 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.
  14. Sutter, Matthias & Haigner, Stefan & Kocher, Martin G., 2010. "Choosing the Carrot or the Stick? Endogenous Institutional Choice in Social Dilemma Situations," Munich Reprints in Economics 18193, University of Munich, Department of Economics.
  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. 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.
  17. 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.
  18. 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).
  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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Citations

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Cited by:
  1. 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.
  2. Gürtler, Marc & Gürtler, Oliver, 2012. "Inequality aversion and externalities," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 111-117.
  3. 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).
  4. Nikiforakis, Nikos & Oechssler, Jörg & Shah, Anwar, 2012. "Hierarchy, Coercion, and Exploitation: An Experimental Analysis," Working Papers 0530, University of Heidelberg, Department of Economics.

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