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Patience or Fairness? Analyzing Social Preferences in Repeated Games

  • John Duffy
  • Felix Munoz-Garcia

    ()

    (School of Economic Sciences, Washington State University)

This paper investigates how the introduction of social preferences affects players’ equilibrium behavior in both one-shot and infinitely repeated versions of the Prisoner’s Dilemma game. We first show that defection survives as the unique equilibrium of the stage game if at least one player is not too concerned about inequity aversion. Second, we demonstrate that in the infinitely repeated version of the game, fairness concerns operate as a “substitute: for time discounting, as fairness helps sustain cooperation for lower discount factors. We then extend our results to more general simultaneous-move games, and more general preferences. Furthermore, we examine how the introduction of incomplete information about players’ social preferences can help in the selection of the efficient cooperative outcome. Finally, we point out the implications of our findings for the design and analysis of experiments involving repeated games. In particular, repeated game equilibria which are thought to be supported by sufficiently large discount factors, may in fact be sustained by a combination of discounting and social preference parameters, an observation that may help rationalize recent experimental findings.

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File URL: http://faculty.ses.wsu.edu/WorkingPapers/Munoz/WP2009-12.pdf
File Function: First version, 2009
Download Restriction: no

Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2009-12.

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Length: 27 pages
Date of creation: May 2009
Date of revision:
Handle: RePEc:wsu:wpaper:munoz-4
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  1. William Neilson, 2006. "Axiomatic reference-dependence in behavior toward others and toward risk," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(3), pages 681-692, 08.
  2. Yuichi Yamamoto, 2010. "The use of public randomization in discounted repeated games," International Journal of Game Theory, Springer;Game Theory Society, vol. 39(3), pages 431-443, July.
  3. Brandts, J. & Figueras, N., 1997. "An Exploration of Reputation Formation in Experimental Games," UFAE and IAE Working Papers 404.97, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. John Duffy & Jack Ochs, 2004. "Cooperative Behavior and the Frequency of Social Interaction," Levine's Bibliography 122247000000000108, UCLA Department of Economics.
  5. Matthias Blonski & Peter Ockenfels & Giancarlo Spagnolo, 2011. "Equilibrium Selection in the Repeated Prisoner's Dilemma: Axiomatic Approach and Experimental Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(3), pages 164-92, August.
  6. Normann, Hans-Theo & Wallace, Brian, 2011. "The impact of the termination rule on cooperation in a prisoner's dilemma experiment," DICE Discussion Papers 19, Düsseldorf Institute for Competition Economics (DICE), University of Düsseldorf.
  7. Jörg Oechssler, 2013. "Finitely repeated games with social preferences," Experimental Economics, Springer, vol. 16(2), pages 222-231, June.
  8. Cooper, R. & DeJong, D.W. & Ross, T.W., 1992. "Cooperation without Reputation: Experimental Evidence from Prisoner's Dilemma Games," Papers 36, Boston University - Industry Studies Programme.
  9. 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.
  10. Anderhub, Vital & Güth, Werner & Engelmann, Dirk, 1999. "An experimental study of the repeated trust game with incomplete information," SFB 373 Discussion Papers 1999,97, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  11. Urs Fischbacher & Simon Gaechter, 2009. "Social Preferences, Beliefs, and the Dynamics of Free Riding in Public Good Experiments," Discussion Papers 2009-04, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  12. Hector Chade & Pavlo Prokopovych & Lones Smith, 2006. "Repeated Games with Present-Biased Preferences," Cowles Foundation Discussion Papers 1555, Cowles Foundation for Research in Economics, Yale University.
  13. Esther Hauk, 1999. "Multiple prisoner's dilemma games with (out) an outside option: An experimental study," Economics Working Papers 391, Department of Economics and Business, Universitat Pompeu Fabra.
  14. James W. Friedman, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Oxford University Press, vol. 38(1), pages 1-12.
  15. Maria Montero, 2006. "Inequity Aversion May Increase Inequity," Working Papers 2006.80, Fondazione Eni Enrico Mattei.
  16. John Duffy & Felix Munoz-Garcia, 2010. "Signaling Concerns about Fairness: Cooperation under Uncertain Social Preferences," Working Papers 2010-19, School of Economic Sciences, Washington State University.
  17. Drew Fudenberg & David G. Rand & Anna Dreber, 2012. "Slow to Anger and Fast to Forgive: Cooperation in an Uncertain World," American Economic Review, American Economic Association, vol. 102(2), pages 720-49, April.
  18. Gabriele Camera & Marco Casari, 2009. "Cooperation among Strangers under the Shadow of the Future," American Economic Review, American Economic Association, vol. 99(3), pages 979-1005, June.
  19. Paul J. Healy, 2007. "Group Reputations, Stereotypes, and Cooperation in a Repeated Labor Market," American Economic Review, American Economic Association, vol. 97(5), pages 1751-1773, December.
  20. Aoyagi, Masaki & Fréchette, Guillaume, 2009. "Collusion as public monitoring becomes noisy: Experimental evidence," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1135-1165, May.
  21. Pedro Dal Bo & Guillaume R. Frochette, 2011. "The Evolution of Cooperation in Infinitely Repeated Games: Experimental Evidence," American Economic Review, American Economic Association, vol. 101(1), pages 411-29, February.
  22. 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.
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