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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 (1999) or Bolton and Ockenfels (2000). In fact, repeating the unique stage game equilibrium may not be a subgame perfect equilibrium at all.

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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. Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1812, C.E.P.R. Discussion Papers.
  2. Martin Brown & Armin Falk & Ernst Fehr, 2004. "Relational Contracts and the Nature of Market Interactions," Econometrica, Econometric Society, Econometric Society, vol. 72(3), pages 747-780, 05.
  3. Charness, Gary & Rabin, Matthew, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt3d04q5sm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Drew Fudenberg & David K Levine, 2011. "Fairness and Independence: An Impossibility Theorem," Levine's Working Paper Archive 786969000000000001, David K. Levine.
  5. Loukas Balafoutas & Martin G. Kocher & Louis Putterman & Matthias Sutter, 2010. "Equality, Equity and Incentives: An Experiment," Working Papers, Faculty of Economics and Statistics, University of Innsbruck 2010-26, Faculty of Economics and Statistics, University of Innsbruck.
  6. Antonio Cabrales & Rosemarie Nagel & José Rodríguez Mora, 2012. "It is Hobbes, not Rousseau: an experiment on voting and redistribution," Experimental Economics, Springer, Springer, vol. 15(2), pages 278-308, June.
  7. John Duffy & Felix Munoz-Garcia, 2009. "Patience or Fairness? Analyzing Social Preferences in Repeated Games," Working Papers, School of Economic Sciences, Washington State University 2009-12, School of Economic Sciences, Washington State University.
  8. Martin J Osborne & Ariel Rubinstein, 2009. "A Course in Game Theory," Levine's Bibliography 814577000000000225, UCLA Department of Economics.
  9. Fudenberg, Drew & Lavine, David K., 2012. "Fairness, Risk Preferences and Independence: Impossibility Theorems," Scholarly Articles 11022184, Harvard University Department of Economics.
  10. Huck, Steffen & Muller, Wieland & Normann, Hans-Theo, 2001. "Stackelberg Beats Cournot: On Collusion and Efficiency in Experimental Markets," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 111(474), pages 749-65, October.
  11. David Masclet & Marie-Claire Villeval, 2008. "Punishment, inequality, and welfare : a public good experiment," Post-Print halshs-00196567, HAL.
  12. 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, University of Munich, Department of Economics 18193, University of Munich, Department of Economics.
  13. 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).
  14. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 166-193, March.
  15. Engelmann,Dirk & Strobel,Martin, 2002. "Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments," Research Memorandum, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT) 015, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  16. Sabrina Teyssier, 2008. "Experimental Evidence on Inequity Aversion and Self-Selection between Incentive Contracts," Post-Print halshs-00303727, HAL.
  17. Matthew Rabin & Georg Weizsacker, 2009. "Narrow Bracketing and Dominated Choices," American Economic Review, American Economic Association, American Economic Association, vol. 99(4), pages 1508-43, September.
  18. Trautmann, Stefan T., 2009. "A tractable model of process fairness under risk," Journal of Economic Psychology, Elsevier, Elsevier, vol. 30(5), pages 803-813, October.
  19. Rubinstein Ariel & Wolinsky Asher, 1995. "Remarks on Infinitely Repeated Extensive-Form Games," Games and Economic Behavior, Elsevier, 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, University of Pittsburgh, Department of Economics 383, University of Pittsburgh, Department of Economics, revised May 2009.
  2. Kocher, Martin G. & Tan, Fangfang & Yu, Jing, 2014. "Providing global public goods: Electoral delegation and cooperation," Discussion Papers in Economics, University of Munich, Department of Economics 21163, University of Munich, Department of Economics.
  3. Riedl, Arno & Rohde, Ingrid M.T. & Strobel, Martin, 2011. "Efficient Coordination in Weakest-Link Games," IZA Discussion Papers 6223, Institute for the Study of Labor (IZA).
  4. Gürtler, Marc & Gürtler, Oliver, 2011. "Inequality aversion and externalities," Working Papers IF36V1, Technische Universität Braunschweig, Institute of Finance.
  5. Nikiforakis, Nikos & Oechssler, Jörg & Shah, Anwar, 2014. "Hierarchy, coercion, and exploitation: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 97(C), pages 155-168.

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