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Coordination after gains and losses: Is prospect theory’s value function predictive for games?

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  • Schade, Christian
  • Schroeder, Andreas
  • Krause, Kai Oliver

Abstract

We analyze the effects of prior gain and loss experiences on individuals’ behavior in two coordination games: battle of the sexes and simultaneous market entry. We propose subjectively transformed games that integrate elements of prospect theory, aggregation of prior and subsequent payoffs, and social projection. Mathematical predictions of behavior are derived based on equilibrium selection concepts. Males’ behavior in our experimental studies is largely consistent with our predictions. However, the behavior of many female respondents appears to be rather consistent with interpreting the initial random lottery outcomes used to manipulate prior experiences as a signal for the players’ abilities to compete. This could be related to females’ known uneasiness of competing against counterparts that might be male and thus, a generally higher salience of rivalry in our incentivized experiments. Females also chose to play far more mixed strategies than males indicating some uncertainty about what type of behavior is appropriate.

Suggested Citation

  • Schade, Christian & Schroeder, Andreas & Krause, Kai Oliver, 2010. "Coordination after gains and losses: Is prospect theory’s value function predictive for games?," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 59524, Humboldt University Berlin, Department of Agricultural Economics.
  • Handle: RePEc:ags:huscpw:59524
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    Cited by:

    1. Salvatore Greco & Fabio Rindone, 2014. "The bipolar Choquet integral representation," Theory and Decision, Springer, vol. 77(1), pages 1-29, June.
    2. Artinger, Sabrina & Schade, Christian, 2013. "Girls will be Girls: An Experimental Study on Female Entrepreneurship," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 146511, Humboldt University Berlin, Department of Agricultural Economics.

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    Keywords

    Prospect Game Theory; Prior Outcomes; Coordination; Equilibrium Selection; Economic Experiment; Agribusiness; Agricultural and Food Policy; Financial Economics; Institutional and Behavioral Economics; Research Methods/ Statistical Methods; Risk and Uncertainty;

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