Anger and Strategic Behavior: A Level-K Analysis

54 Pages Posted: 9 Sep 2020

See all articles by Alessandro Castagnetti

Alessandro Castagnetti

University of Warwick

Eugenio Proto

University of Glasgow; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute)

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Abstract

Anger is an important driver in shaping economic activities, particularly in instances that involve strategic interactions between individuals. Here we test whether anger impairs the capacity to think strategically, and we analyze the implications of our result on bargaining and cooperation games. Accordingly, with a preregistered experiment (Experiment 1), we externally induce anger to a subgroup of subjects following a standard procedure that we verify by using a novel method of text analysis. We show that anger can impair the capacity to think strategically in a beauty contest game.Angry subjects choose numbers further away from the Nash equilibrium, and earn significantly lower profits. A structural analysis estimates that there is an increase in the share of level-zero players in the treated group compared to the control group. Furthermore, with a second preregistered experiment (Experiment 2), we show that this effect is not common to all negative emotions. Sad subjects do not play significantly further away from the Nash equilibrium than the control group in the same beauty contest game of Experiment 1, and sadness does not lead to more level-zero play.

Keywords: anger, induced emotions, strategic interactions, beauty-contest

JEL Classification: C92, D90, D91

Suggested Citation

Castagnetti, Alessandro and Proto, Eugenio, Anger and Strategic Behavior: A Level-K Analysis. IZA Discussion Paper No. 13661, Available at SSRN: https://ssrn.com/abstract=3687138

Eugenio Proto

University of Glasgow ( email )

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IZA Institute of Labor Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute) ( email )

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