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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. Balafoutas, Loukas & Kocher, Martin G. & Putterman, Louis & Sutter, Matthias, 2013. "Equality, Equity and Incentives: An Experiment," Munich Reprints in Economics 18172, University of Munich, Department of Economics.
  2. 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.
  3. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, December.
  4. 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.
  5. Gary Charness & Matthew Rabin, 2003. "Understanding Social Preferences with Simple Tests," General Economics and Teaching 0303002, EconWPA.
  6. Drew Fudenberg & David K Levine, 2011. "Fairness and Independence: An Impossibility Theorem," Levine's Working Paper Archive 786969000000000001, David K. Levine.
  7. Matthew Rabin & Georg Weizsacker, 2009. "Narrow Bracketing and Dominated Choices," American Economic Review, American Economic Association, vol. 99(4), pages 1508-43, September.
  8. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
  9. Trautmann, Stefan T., 2009. "A tractable model of process fairness under risk," Journal of Economic Psychology, Elsevier, vol. 30(5), pages 803-813, October.
  10. 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.
  11. 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.
  12. Sabrina Teyssier, 2008. "Experimental Evidence on Inequity Aversion and Self-Selection between Incentive Contracts," Post-Print halshs-00303727, HAL.
  13. Dirk Engelmann & Martin Strobel, 2004. "Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments," American Economic Review, American Economic Association, vol. 94(4), pages 857-869, September.
  14. 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.
  15. 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.
  16. Rubinstein Ariel & Wolinsky Asher, 1995. "Remarks on Infinitely Repeated Extensive-Form Games," Games and Economic Behavior, Elsevier, vol. 9(1), pages 110-115, April.
  17. David Masclet & Marie-Claire Villeval, 2008. "Punishment, inequality, and welfare : a public good experiment," Post-Print halshs-00196567, HAL.
  18. 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.
  19. 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.
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Cited by:
  1. Arno Riedl & Ingrid M.T. Rohde & Martin Strobel, 2011. "Efficient Coordination in Weakest-Link Games," Working Papers 201103, Murat Sertel Center for Advanced Economic Studies, Istanbul Bilgi University.
  2. Gürtler, Marc & Gürtler, Oliver, 2011. "Inequality aversion and externalities," Working Papers IF36V1, Technische Universität Braunschweig, Institute of Finance.
  3. John Duffy & Felix Munoz-Garcia, 2009. "Patience or Fairness? Analyzing Social Preferences in Repeated Games," Working Papers 2009-12, School of Economic Sciences, Washington State University.
  4. Nikiforakis, Nikos & Oechssler, Jörg & Shah, Anwar, 2014. "Hierarchy, coercion, and exploitation: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 155-168.

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