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Loss avoidance as selection principle: evidence from simple stag-hunt games

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  • Ondrej Rydval
  • Andreas Ortmann

Abstract

We investigate experimentally the conjecture that loss avoidance solves the tension in stag-hunt games for which payoff dominance and risk dominance make conflicting predictions. Contrary to received textbook wisdom, money-losing outcomes do shift behavior, albeit not strongly, toward the payoff-dominant equilibrium.

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Bibliographic Info

Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp245.

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Date of creation: Dec 2004
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Handle: RePEc:cer:papers:wp245

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Keywords: Loss avoidance; Selection principle; Stag-hunt games; Coordination games; Experiment;

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  1. Marianne Bertrand & Sendhil Mullainathan, 2003. "Enjoying the Quiet Life? Corporate Governance and Managerial Preferences," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1043-1075, October.
  2. Ballinger, T Parker & Wilcox, Nathaniel T, 1997. "Decisions, Error and Heterogeneity," Economic Journal, Royal Economic Society, vol. 107(443), pages 1090-1105, July.
  3. Cooper, Russell, et al, 1992. "Communication in Coordination Games," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 739-71, May.
  4. Jacob K. Goeree & Charles A. Holt, 2001. "Ten Little Treasures of Game Theory and Ten Intuitive Contradictions," American Economic Review, American Economic Association, vol. 91(5), pages 1402-1422, December.
  5. Rydval, Ondrej & Ortmann, Andreas, 2005. "Loss avoidance as selection principle: Evidence from simple stag-hunt games," Economics Letters, Elsevier, vol. 88(1), pages 101-107, July.
  6. Glenn W. Harrison & Eric Johnson & Melayne M. McInnes & E. Elisabet Rutstr´┐Żm, 2005. "Risk Aversion and Incentive Effects: Comment," American Economic Review, American Economic Association, vol. 95(3), pages 897-901, June.
  7. Van Huyck, John B. & Gillette, Ann B. & Battalio, Raymond C., 1992. "Credible assignments in coordination games," Games and Economic Behavior, Elsevier, vol. 4(4), pages 606-626, October.
  8. Schmidt, Ulrich & Traub, Stefan, 2002. " An Experimental Test of Loss Aversion," Journal of Risk and Uncertainty, Springer, vol. 25(3), pages 233-49, November.
  9. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
  10. Cachon, Gerard P & Camerer, Colin F, 1996. "Loss-Avoidance and Forward Induction in Experimental Coordination Games," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 165-94, February.
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