Loss Aversion in Asymmetric Anti-Coordination Games

Southern Economic Journal

42 Pages Posted: 16 Feb 2022

See all articles by Yuanji Wen

Yuanji Wen

The University of Western Australia - Department of Accounting and Finance

Stijn Masschelein

University of Western Australia

Anmol Ratan

Monash University

Date Written: February 03, 2022

Abstract

This paper studies theoretically and experimentally how the possibility of a negative payoff to one player in 2-by-2 hawk-dove games affects the strategic behavior of both players. Exposing column players to a possibility of negative payoff allows us to examine if row players can anticipate the column players’ loss aversion. A level-k model with loss averse agents predicts treatment effects across two versions of hawk-dove games with and without losses. Our data support a direct effect of loss aversion and fail to support the anticipation of loss aversion. Specifically, the column players in the treatment group are more likely to play Dove when they face losses; while, only few untreated participants acting as row players seem to anticipate such increased propensity of choosing Dove by their opponents. Further, a time effect is documented and found to be explained by increases in participants’ depths of strategic reasoning over time.

Keywords: loss aversion, asymmetric hawk-dove game, level-k model, reference point

JEL Classification: C72, C90, D81

Suggested Citation

Wen, Yuanji and Masschelein, Stijn and Ratan, Anmol, Loss Aversion in Asymmetric Anti-Coordination Games (February 03, 2022). Southern Economic Journal, Available at SSRN: https://ssrn.com/abstract=4033651

Yuanji Wen (Contact Author)

The University of Western Australia - Department of Accounting and Finance ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Stijn Masschelein

University of Western Australia ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Anmol Ratan

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
+61-399020179 (Phone)

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