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Incorporating fairness motives into the Impulse Balance Equilibrium concept: an application to experimental 2X2 games

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  • Tavoni, Alessandro

Abstract

Substantial evidence has been 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, often by introducing a reference point to which players compare the available payoff allocations, as in impulse balance equilibrium (Selten & Chmura, forthcoming) and in the inequity aversion model (Fehr & Schmidt,1999). The purpose of this paper is to review some features of this recent literature and to propose a new, empirically sound, unifying concept which combines elements of fairness with reference considerations.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7760.

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Date of creation: Oct 2007
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Handle: RePEc:pra:mprapa:7760

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Keywords: Fairness; Inequity aversion; Aspiration level; Impulse balance; Behavioral economics; Experimental economics; Jacknife estimator;

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  1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  2. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  3. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  4. Selten,Reinhard, . "Properties of a measure of predictive succes," Discussion Paper Serie B 130, University of Bonn, Germany.
  5. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September.
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