On Loss Aversion in Bimatrix Games
In this paper we study three different types of loss aversion equilibria in bimatrix games. Loss aversion equilibria are Nash equilibria of games where players are loss averse and where the reference points – points below which they consider payoffs to be losses – are endogenous to the equilibrium calculation. The first type is the fixed point loss aversion equilibrium, introduced in Shalev (2000) under the name of ‘myopic loss aversion equilibrium’. There, the players’ reference points depend on the beliefs about their opponents’ strategies. The second type, the maximin loss aversion equilibrium, differs from the fixed point loss aversion equilibrium in that the reference point is now only based on the carrier of the players’ beliefs, not on the exact probabilities. In the third, the safety level loss aversion equilibrium, this dependence is completely dispensed with. Finally, we do a comparative statics analysis of all three equilibrium concepts in 2-by-2 bimatrix games. The results indicate that a player, under some conditions, benefits from his opponent falsely believing he is loss averse.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 68 (2010)
Issue (Month): 4 (April)
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/economic+theory/journal/11238/PS2|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jonathan Shalev, 2000.
"Loss aversion equilibrium,"
International Journal of Game Theory,
Springer;Game Theory Society, vol. 29(2), pages 269-287.
- SHALEV, Jonathan, "undated". "Loss aversion equilibrium," CORE Discussion Papers RP 1456, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- SHALEV, Jonathan, 1997. "Loss aversion equilibrium," CORE Discussion Papers 1997023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Jonathan Shalev, 1997. "Loss Aversion Equilibrium," Game Theory and Information 9703001, EconWPA, revised 11 Mar 1997.
- Driesen Bram & Perea Andrés & Peters Hans, 2007.
"On loss aversion in bimatrix games,"
033, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Caroline Berden & Hans Peters, 2006.
"On the Effect of Risk Aversion in Bimatrix Games,"
Theory and Decision,
Springer, vol. 60(4), pages 359-370, 06.
- Christopher K. Butler, 2007. "Prospect Theory and Coercive Bargaining," Journal of Conflict Resolution, Peace Science Society (International), vol. 51(2), pages 227-250, April.
- Schoemaker, Paul J H, 1982. "The Expected Utility Model: Its Variants, Purposes, Evidence and Limitations," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 529-563, June.
- Machina, Mark J, 1987. "Choice under Uncertainty: Problems Solved and Unsolved," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 121-154, Summer.
- Dekel, Eddie & Safra, Zvi & Segal, Uzi, 1991. "Existence and dynamic consistency of Nash equilibrium with non-expected utility preferences," Journal of Economic Theory, Elsevier, vol. 55(2), pages 229-246, December.
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
- John C. Hershey & Howard C. Kunreuther & Paul J. H. Schoemaker, 1982. "Sources of Bias in Assessment Procedures for Utility Functions," Management Science, INFORMS, vol. 28(8), pages 936-954, August.
- Crawford, Vincent P., 1990. "Equilibrium without independence," Journal of Economic Theory, Elsevier, vol. 50(1), pages 127-154, February.
- Fershtman, C., 1993.
"On the Value of Incumbency Managerial Reference Point and loss Aversion,"
7-93, Tel Aviv - the Sackler Institute of Economic Studies.
- Fershtman, Chaim, 1996. "On the value of incumbency managerial reference points and loss aversion," Journal of Economic Psychology, Elsevier, vol. 17(2), pages 245-257, April.
- Chaim Fershtman, 1993. "On the Value of Incumbency: Managerial Reference Point and Loss Aversion," Discussion Papers 1020, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Camerer, Colin F., 1998. "Prospect Theory in the Wild: Evidence From the Field," Working Papers 1037, California Institute of Technology, Division of the Humanities and Social Sciences.
- Eichberger, Jurgen & Kelsey, David, 2000. "Non-Additive Beliefs and Strategic Equilibria," Games and Economic Behavior, Elsevier, vol. 30(2), pages 183-215, February.
When requesting a correction, please mention this item's handle: RePEc:kap:theord:v:68:y:2010:i:4:p:367-391. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.