Incorporating Fairness Motives into the Impulse Balance Equilibrium and Quantal Response Equilibrium Concepts: An Application to 2x2 Games
AbstractSubstantial evidence has accumulated in recent empirical works on the limited ability of the Nash equilibrium to rationalize observed behavior in many classes of games played by experimental subjects. This realization has led to several attempts aimed at finding tractable equilibrium concepts which perform better empirically; one such example is the impulse balance equilibrium (Selten, Chmura, 2008), which introduces a psychological reference point to which players compare the available payoff allocations. This paper is concerned with advancing two new, empirically sound, concepts: equity-driven impulse balance equilibrium (EIBE) and equity-driven quantal response equilibrium (EQRE): both introduce a distributive reference point to the corresponding established stationary concepts known as impulse balance equilibrium (IBE) and quantal response equilibrium (QRE). The explanatory power of the considered models leads to the following ranking, starting with the most successful in terms of fit to the experimental data: EQRE, IBE, EIBE, QRE and Nash equilibrium.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.40.
Date of creation: May 2009
Date of revision:
Fairness; Inequity aversion; Aspiration level; Impulse balance; Quantal Response; Behavioral economics; Experimental economics;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-28 (All new papers)
- NEP-EXP-2009-07-28 (Experimental Economics)
- NEP-GTH-2009-07-28 (Game Theory)
- NEP-HPE-2009-07-28 (History & Philosophy of Economics)
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