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ERC: A Theory of Equity, Reciprocity, and Competition

  • Axel Ockenfels
  • Gary E. Bolton

We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern. The model is incomplete information but nevertheless posed entirely in terms of directly observable variables. The model explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is thought to play a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed, such as Bertrand markets.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.90.1.166
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 90 (2000)
Issue (Month): 1 (March)
Pages: 166-193

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Handle: RePEc:aea:aecrev:v:90:y:2000:i:1:p:166-193
Note: DOI: 10.1257/aer.90.1.166
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