Losing face

When Al makes an offer to Betty that Betty observes and rejects, Al may suffer a painful and costly ‘loss of face’ (LoF). LoF can be avoided by letting the vulnerable side make the second move, or by setting up conditionally anonymous environments that only reveal when both parties say ‘yes’. This can impact bilateral matching problems; for example, marriage markets, research partnering, and international negotiations. We model this situation assuming asymmetric information, continuous signals of individuals’ binary types, linear marriage production functions, and a primitive LoF term component to utility. LoF makes rejecting one’s match strictly preferable to being rejected, making stable the ‘high-types always reject’ equilibrium. LoF may have non-monotonic effects on stable interior equilibria. A small LoF makes high-types more selective, making marriage less common and more assortative. A greater LoF (for males only) makes low-type males reverse snobs, which makes high-type females less choosy, with ambiguous effects on the marriage rate.