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The power of conventions: A theory of social preferences

People often act as if they care about others' welfare as well as their own (i.e. have "social preferences"). One plausible assumption is that people have preferences for social implications of their actions, determined by exogenous "conventions", in addition to the material consequences of actions. I construct games with conventions using the psychological games framework developed in Geanakoplos et al. [Geanakoplos, J., Pearce, D., Stacchetti, E., 1989. Psychological games and sequential rationality. Games and Economic Behavior 1, 60-79]. With a notion of distributional convention combining efficiency and fairness, I show equilibrium behavior reflects social preferences. The model yields tight and testable predictions consistent with a large body of experimental results, is parsimonious, and is suggestive of further studies, both experimentally and theoretically.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 65 (2008)
Issue (Month): 3-4 (March)
Pages: 489-505

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Handle: RePEc:eee:jeborg:v:65:y:2008:i:3-4:p:489-505
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Charness, Gary & Rabin, Matthew, 2001. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt4qz9k8vg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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  10. 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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  12. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
  13. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages S285-300, October.
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