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Losing Face

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  • David Hugh-Jones

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  • David Reinstein

    ()

Abstract

When person A takes an action that can be interpreted as �making an offer� to person B and B �rejects the offer,� then A may �lose face.� This loss of face (LoF) and consequent disutility will occur only if these actions are common knowledge to A and B. While under some circumstances this LoF can be rationalized by the consequences for future reputation, we claim it also enters directly into the utility function. LoF concerns can lead to fewer offers and inefficiency in markets that involve matching, discrete transactions, and offers/proposals in both directions. This pertains to the marriage market, certain types of labor markets, admissions to colleges and universities, and certain types of joint ventures and collaborations. We offer a simple model of this, and show that under some circumstances welfare can be improved by a mechanism that only reveals offers when both parties say �yes.�

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Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 691.

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Date of creation: 29 Oct 2010
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Handle: RePEc:esx:essedp:691

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  1. Pierpaolo Battigalli & Martin Dufwenberg, 2007. "Guilt in Games," American Economic Review, American Economic Association, vol. 97(2), pages 170-176, May.
  2. Chade, Hector, 2006. "Matching with noise and the acceptance curse," Journal of Economic Theory, Elsevier, vol. 129(1), pages 81-113, July.
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  9. Alejandro Tatsuo Moreno, 2007. "Group Fairness and Game Theory," Department of Economics and Finance Working Papers EC200702, Universidad de Guanajuato, Department of Economics and Finance, revised Jun 2008.
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Cited by:
  1. Maria Goltsman & Gregory Pavlov, 2012. "Communication in Cournot Oligopoly," UWO Department of Economics Working Papers 20121, University of Western Ontario, Department of Economics.

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