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The importance of foregone options

  • Ana Espinola-Arredondo
  • Felix Munoz-Garcia

    ()

    (School of Economic Sciences, Washington State University)

Recent experimental evidence supports the influence of a player's unchosen alternatives in other agent's actions. This paper examines a tractable theoretical model of reference-dependent preferences in which individuals compare other players'chosen action with respect to their un- chosen alternatives. We analyze the equilibrium prediction in complete information sequential- move games, and compare it with that of standard games where players are not concerned about unchosen alternatives. We show that, without relying on interpersonal payo¤ comparisons (i.e., with strictly individualistic agents), our model predicts higher cooperation among the players than standard game-theoretic models. We apply our results in three economic contexts: the labor market gift exchange game, the ultimatum bargaining game, and the sequential public good game. Revised Feb. 2009

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File URL: http://faculty.ses.wsu.edu/WorkingPapers/AnaEspinola/Espinola_FORGONE.pdf
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Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2008-14.

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Length: 27 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:wsu:wpaper:espinola-2
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  1. Gary Charness & Matthew Rabin, 2003. "Understanding Social Preferences with Simple Tests," General Economics and Teaching 0303002, EconWPA.
  2. Andreoni,J. & Brown,P.M. & Vesterlund,L., 1999. "What makes an allocation fair? : Some experimental evidence," Working papers 4, Wisconsin Madison - Social Systems.
  3. Akerlof, George A, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, MIT Press, vol. 97(4), pages 543-69, November.
  4. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  5. Cox, James C. & Friedman, Daniel & Sadiraj, Vjollca, 2009. "Revealed Altruism," Santa Cruz Department of Economics, Working Paper Series qt6rb5t4mc, Department of Economics, UC Santa Cruz.
  6. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  7. Georg Kirchsteiger & Martin Dufwenberg, 2004. "A theory of sequential reciprocity," ULB Institutional Repository 2013/5899, ULB -- Universite Libre de Bruxelles.
  8. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
  9. 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.
  10. Ernst Fehr & Simon Gaechter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," CESifo Working Paper Series 336, CESifo Group Munich.
  11. Brandts, Jordi & Sola, Carles, 2001. "Reference Points and Negative Reciprocity in Simple Sequential Games," Games and Economic Behavior, Elsevier, vol. 36(2), pages 138-157, August.
  12. Uzi Segal & Joel Sobel, 1999. "Tit for Tat: Foundations of Preferences for Reciprocity in Strategic Settings," UWO Department of Economics Working Papers 9905, University of Western Ontario, Department of Economics.
  13. Alexandre Mas, 2006. "Pay, Reference Points, and Police Performance," NBER Working Papers 12202, National Bureau of Economic Research, Inc.
  14. Loomes, Graham & Sugden, Robert, 1982. "Regret Theory: An Alternative Theory of Rational Choice under Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 805-24, December.
  15. 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.
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