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Mental Equilibrium and Rational Emotions

  • Eyal Winter
  • Ignacio Garcia-Jurado
  • Jose Mendez-Naya
  • Luciano Mendez-Naya

We introduce emotions into an equilibrium notion. In a mental equilibrium each player "selects" an emotional state which determines the player's preferences over the outcomes of the game. These preferences typically differ from the players' material preferences. The emotional states interact to play a Nash equilibrium and in addition each player's emotional state must be a best response (with respect to material preferences) to the emotional states of the others. We discuss the concept behind the definition of mental equilibrium and show that this behavioral equilibrium notion organizes quite well the results of some of the most popular experiments in the experimental economics literature. We shall demonstrate the role of mental equilibrium in incentive mechaisms and will discuss the concept of collective emotions, which is based on the idea that players can coordinate their emotional states.

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Paper provided by The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem in its series Discussion Paper Series with number dp521.

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Length: 29 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:huj:dispap:dp521
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  2. Eyal Winter, 2009. "Incentive Reversal," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 133-47, August.
  3. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
  4. Eyal Winter, 2003. "Incentives and Discrimination," Discussion Paper Series dp313, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
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  12. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  13. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
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  15. G Th, Werner & Ockenfels, Axel, 2005. "The coevolution of morality and legal institutions: an indirect evolutionary approach," Journal of Institutional Economics, Cambridge University Press, vol. 1(02), pages 155-174, December.
  16. Chaim Fershtman & Aviad Heifetz, 2006. "Read My Lips, Watch for Leaps: Preference Equilibrium and Political Instability," Economic Journal, Royal Economic Society, vol. 116(508), pages 246-265, 01.
  17. Isaac, R. Mark & Walker, James M. & Williams, Arlington W., 1994. "Group size and the voluntary provision of public goods : Experimental evidence utilizing large groups," Journal of Public Economics, Elsevier, vol. 54(1), pages 1-36, May.
  18. Armin Falk & Andrea Ichino, 2006. "Clean Evidence on Peer Effects," Journal of Labor Economics, University of Chicago Press, vol. 24(1), pages 39-58, January.
  19. Eddie Dekel & Jeffrey C. Ely & Okan Yilankaya, 2007. "Evolution of Preferences -super-1," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 685-704.
  20. Eyal Winter, 2006. "Optimal incentives for sequential production processes," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 376-390, 06.
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