Ecologies of Preferences with Envy as an Antidote to Risk-Aversion in Bargaining
Models have been put forward recently that seem to be successful in explaining apparently anomalous experimental results in the Ultimatum Game, where responders reject positive offers. While imparting fixed preference orders to fully rational agents, these models depart from traditional models by assuming preferences that take account not only of the material payoff to oneself, but also of that which is given to others. However, they leave open the question of how an agent’s economic survival is helped by a preference order that advises him to leave money on the table. Our answer is that, indeed, doing so does not help. But that the same envious preference order that ill advises in some circumstances to reject an “insultingly” small offer, advises well in other circumstances, when it helps the same agent to overcome his risk-aversion and to offer a risky, tough offer that yields him a higher expected dollar gain. We show the existence of population distributions where the two effects exactly balance out across different preference types. These distributions are asymptotically stable, stationary, and inefficient, in which different preferences are represented, and where, as commonly observed in an Ultimatum Game, positive offers are made, of which some are rejected with positive probability. Our theory yields new testable hypotheses.
|Date of creation:||Apr 2000|
|Date of revision:||Nov 2001|
|Contact details of provider:|| Postal: Feldman Building - Givat Ram - 91904 Jerusalem|
Web page: http://www.ratio.huji.ac.il/
More information through EDIRC
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.:
- Ernst Fehr & Klaus M. Schmidt, .
"A Theory of Fairness, Competition and Cooperation,"
IEW - Working Papers
004, Institute for Empirical Research in Economics - University of Zurich.
- Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
- Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
- Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
- Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
- Matthew Rabin., 1992.
"Incorporating Fairness into Game Theory and Economics,"
Economics Working Papers
92-199, University of California at Berkeley.
- Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
- M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
- Guth, Werner, 1995. "On ultimatum bargaining experiments -- A personal review," Journal of Economic Behavior & Organization, Elsevier, vol. 27(3), pages 329-344, August.
- Alvin E. Roth & V. Prasnikar & M. Okuno-Fujiwara & S. Zamir, 1998.
"Bargaining and market behavior in Jerusalem, Liubljana, Pittsburgh and Tokyo: an experimental study,"
Levine's Working Paper Archive
344, David K. Levine.
- Roth, Alvin E. & Vesna Prasnikar & Masahiro Okuno-Fujiwara & Shmuel Zamir, 1991. "Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study," American Economic Review, American Economic Association, vol. 81(5), pages 1068-95, December.
- Kandel, E. & Lazear, E.P., 1990.
"Peer Pressure and Partnerships,"
90-07, Rochester, Business - Managerial Economics Research Center.
- Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
- Murnigham, J.K. & Roth, A.E. & Schoumaker, F., 1985.
"Risk Aversion in Bargaining: an Experimental Study,"
Cahiers de recherche
8536, Universite de Montreal, Departement de sciences economiques.
- Murnighan, J Keith & Roth, Alvin E & Schoumaker, Francoise, 1988. "Risk Aversion in Bargaining: An Experimental Study," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 101-24, March.
- Gale, John & Binmore, Kenneth G. & Samuelson, Larry, 1995. "Learning to be imperfect: The ultimatum game," Games and Economic Behavior, Elsevier, vol. 8(1), pages 56-90.
- Merton, Robert C. & Samuelson, Paul A., 1974. "Fallacy of the log-normal approximation to optimal portfolio decision-making over many periods," Journal of Financial Economics, Elsevier, vol. 1(1), pages 67-94, May.
- Eckel, Catherine C & Grossman, Philip J, 2001. "Chivalry and Solidarity in Ultimatum Games," Economic Inquiry, Western Economic Association International, vol. 39(2), pages 171-88, April.
- Camerer, Colin F. & Hogarth, Robin M., 1999.
"The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework,"
1059, California Institute of Technology, Division of the Humanities and Social Sciences.
- Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December.
- S. Huck & J. Oechssler, 1996.
"The Indirect Evolutionary Approach To Explaining Fair Allocations,"
SFB 373 Discussion Papers
1996,13, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Huck, Steffen & Oechssler, Jorg, 1999. "The Indirect Evolutionary Approach to Explaining Fair Allocations," Games and Economic Behavior, Elsevier, vol. 28(1), pages 13-24, July.
- Steffen Huck & Joerg Oechssler, 1995. "The Indirect Evolutionary Approach to Explaining Fair Allocations," Game Theory and Information 9507001, EconWPA, revised 27 Aug 1998.
- Binmore, K. & Samuelson, L. & Gale, J., 1993. "Learning to be Imperfect: The Ultimatum Game," Working papers 9325, Wisconsin Madison - Social Systems.
- Alfred D. Chandler, 1969. "Strategy and Structure: Chapters in the History of the American Industrial Enterprise," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530090, March.
- Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
- 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.
- Gary E. Bolton & Rami Zwick & Elena Katok, 1998. "Dictator game giving: Rules of fairness versus acts of kindness," International Journal of Game Theory, Springer;Game Theory Society, vol. 27(2), pages 269-299.
When requesting a correction, please mention this item's handle: RePEc:huj:dispap:dp322. 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: (Tomer Siedner)
If references are entirely missing, you can add them using this form.