Rational Altruism

Abstract

This article proposes a game-theoretic solution concept promoting endogenous cooperation in non-cooperative games through self-interested agents optimally choosing how much they care about their opponents’ welfare. Rationally altruistic equilibria always exist in finite games as long as a publicly observed signal is available. Characterizations of the equilibrium concept highlight that it is most likely to have a bite when players’ interests are sufficiently dissimilar but not diametrically opposed to each other — such as in the prisoner’s dilemma. In games with more than two players, rational altruism can take an opportunistic form and serve as a device of implicit collusion.

Keywords: Nash equilibrium, altruism, coordination, collusion, efficiency

JEL Classification: C72, D64, D91