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Incorporating Fairness Motives into the Impulse Balance Equilibrium and Quantal Response Equilibrium Concepts: An Application to 2x2 Games

  • Alessandro Tavoni

    (Advanced School of Economics in Venice)

Substantial evidence has accumulated in recent empirical works on the limited ability of the Nash equilibrium to rationalize observed behavior in many classes of games played by experimental subjects. This realization has led to several attempts aimed at finding tractable equilibrium concepts which perform better empirically; one such example is the impulse balance equilibrium (Selten, Chmura, 2008), which introduces a psychological reference point to which players compare the available payoff allocations. This paper is concerned with advancing two new, empirically sound, concepts: equity-driven impulse balance equilibrium (EIBE) and equity-driven quantal response equilibrium (EQRE): both introduce a distributive reference point to the corresponding established stationary concepts known as impulse balance equilibrium (IBE) and quantal response equilibrium (QRE). The explanatory power of the considered models leads to the following ranking, starting with the most successful in terms of fit to the experimental data: EQRE, IBE, EIBE, QRE and Nash equilibrium.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.40.

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Date of creation: May 2009
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Handle: RePEc:fem:femwpa:2009.40
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  1. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September.
  2. Bester, H. & Güth, W., 1994. "Is altruism evolutionarily stable ?," Discussion Paper 1994-103, Tilburg University, Center for Economic Research.
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  4. Armin Falk & Urs Fischbacher, 2001. "A Theory of Reciprocity," CESifo Working Paper Series 457, CESifo Group Munich.
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  7. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
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  9. repec:kap:expeco:v:1:y:1998:i:1:p:43-62 is not listed on IDEAS
  10. Reinhard Selten, 1998. "Axiomatic Characterization of the Quadratic Scoring Rule," Experimental Economics, Springer, vol. 1(1), pages 43-61, June.
  11. John M. Gowdy, 2007. "Behavioral Economics and Climate Change Policy," Rensselaer Working Papers in Economics 0701, Rensselaer Polytechnic Institute, Department of Economics.
  12. Selten, Reinhard, 1991. "Properties of a measure of predictive success," Mathematical Social Sciences, Elsevier, vol. 21(2), pages 153-167, April.
  13. Reinhard Selten & Thorsten Chmura, 2008. "Stationary Concepts for Experimental 2x2-Games," American Economic Review, American Economic Association, vol. 98(3), pages 938-66, June.
  14. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September.
  15. Possajennikov, Alex, 2000. "On the evolutionary stability of altruistic and spiteful preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 42(1), pages 125-129, May.
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