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The importance of foregone options

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Author Info

  • Ana Espinola-Arredondo
  • Felix Munoz-Garcia

    ()
    (School of Economic Sciences, Washington State University)

Abstract

Recent experimental evidence supports the influence of a player's unchosen alternatives in other agent's actions. This paper examines a tractable theoretical model of reference-dependent preferences in which individuals compare other players'chosen action with respect to their un- chosen alternatives. We analyze the equilibrium prediction in complete information sequential- move games, and compare it with that of standard games where players are not concerned about unchosen alternatives. We show that, without relying on interpersonal payo¤ comparisons (i.e., with strictly individualistic agents), our model predicts higher cooperation among the players than standard game-theoretic models. We apply our results in three economic contexts: the labor market gift exchange game, the ultimatum bargaining game, and the sequential public good game. Revised Feb. 2009

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File URL: http://faculty.ses.wsu.edu/WorkingPapers/AnaEspinola/Espinola_FORGONE.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2008-14.

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Length: 27 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:wsu:wpaper:espinola-2

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Keywords: Unchosen alternatives; Sequential-move games; Relative comparisons; Kindness; Reciprocity.;

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  1. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  2. Ernst Fehr & Simon Gaechter, . "Fairness and Retaliation: The Economics of Reciprocitys," IEW - Working Papers 040, Institute for Empirical Research in Economics - University of Zurich.
  3. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper 1998-37, Tilburg University, Center for Economic Research.
  4. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  5. Andreoni,J. & Brown,P.M. & Vesterlund,L., 1999. "What makes an allocation fair? : Some experimental evidence," Working papers 4, Wisconsin Madison - Social Systems.
  6. Segal, Uzi & Sobel, Joel, 1999. "Tit for Tat: Foundations of Preferences for Reciprocity in Strategic Settings," University of California at San Diego, Economics Working Paper Series qt9xf8836g, Department of Economics, UC San Diego.
  7. Cox, James C. & Friedman, Daniel & Sadiraj, Vjollca, 2009. "Revealed Altruism," Santa Cruz Department of Economics, Working Paper Series qt6rb5t4mc, Department of Economics, UC Santa Cruz.
  8. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
  9. Brandts, J. & Sola, C., 1998. "Reference Points and Negative Reciprocity in Simple Sequential Games," UFAE and IAE Working Papers 425.98, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  10. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-24, December.
  11. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  12. M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
  13. Alexandre Mas, 2006. "Pay, Reference Points, and Police Performance," NBER Working Papers 12202, National Bureau of Economic Research, Inc.
  14. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences With Simple Tests," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 817-869, August.
  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.
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