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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 0515.

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Date of creation: 22 Sep 2011
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Handle: RePEc:awi:wpaper:0515

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

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References

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  1. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
  2. Fudenberg, Drew & Levine, David K., 2012. "Fairness, risk preferences and independence: Impossibility theorems," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 81(2), pages 606-612.
  3. Sabrina Teyssier, 2008. "Experimental Evidence on Inequity Aversion and Self-Selection between Incentive Contracts," Working Papers, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure 0821, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  4. 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.
  5. Balafoutas, Loukas & Kocher, Martin G. & Putterman, Louis & Sutter, Matthias, 2010. "Equality, Equity and Incentives: An Experiment," IZA Discussion Papers 5204, Institute for the Study of Labor (IZA).
  6. 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.
  7. 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).
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  10. Matthias Sutter & Stefan Haigner & Martin Kocher, . "Choosing the carrot or the stick? ? Endogenous institutional choice in social dilemma situations," Working Papers, Faculty of Economics and Statistics, University of Innsbruck 2008-07, Faculty of Economics and Statistics, University of Innsbruck.
  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.
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  13. 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.
  14. Drew Fudenberg & David K Levine, 2011. "Fairness and Independence: An Impossibility Theorem," Levine's Working Paper Archive 786969000000000001, David K. Levine.
  15. 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.
  16. 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.
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  19. 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).
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Citations

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Cited by:
  1. John Duffy & Félix Muñoz-García, 2012. "Patience or Fairness? Analyzing Social Preferences in Repeated Games," Games, MDPI, Open Access Journal, MDPI, Open Access Journal, vol. 3(1), pages 56-77, March.
  2. 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).
  3. Nikiforakis, Nikos & Oechssler, Jörg & Shah, Anwar, 2012. "Hierarchy, Coercion, and Exploitation: An Experimental Analysis," Working Papers, University of Heidelberg, Department of Economics 0530, University of Heidelberg, Department of Economics.
  4. 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.
  5. Gürtler, Marc & Gürtler, Oliver, 2011. "Inequality aversion and externalities," Working Papers IF36V1, Technische Universität Braunschweig, Institute of Finance.

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