Strategic Reciprocity and Preference Formation

28 Pages Posted: 28 Mar 2022 Last revised: 14 Sep 2022

See all articles by Jose Carrasco

Jose Carrasco

Escuela de Negocios, Universidad Adolfo Ibañez

Rodrigo Harrison

Universidad Adolfo Ibáñez.

Mauricio Villena

Facultad de Economía y Empresa, Universidad Diego Portales

Date Written: February 26, 2022

Abstract

We model how individual preferences are shaped by strategic reciprocity choices. Our model accounts for heterogeneous players -- with intrinsic altruistic, selfish or spiteful preferences -- who randomly engage in short-run, as well as long-run, pairwise interactions. To disentangle the strategic component of preferences we allow players to act reciprocally in the long-run to conveniently adjust their preferences depending on who they interact with. How they change and what specific kind of preferences emerge in equilibrium crucially depend on whether the short-run strategic interaction is one of strategic complements or substitutes. Our model also predicts that we might observe behavior-reversion: players might behave against their intrinsic type exclusively due to strategic considerations. With incomplete information the strategic component of preferences vanishes, equilibrium preferences are as selfish as possible, and thus there is no behavior-reversion.

Keywords: Reciprocity, Preference Formation, Altruism

JEL Classification: C72, A13

Suggested Citation

Carrasco, Jose and Harrison, Rodrigo and Villena, Mauricio, Strategic Reciprocity and Preference Formation (February 26, 2022). Available at SSRN: https://ssrn.com/abstract=4044757 or http://dx.doi.org/10.2139/ssrn.4044757

Jose Carrasco (Contact Author)

Escuela de Negocios, Universidad Adolfo Ibañez ( email )

2640, Peñalolen
Santiago
Chile

HOME PAGE: http://www.tonocarrasco.com

Rodrigo Harrison

Universidad Adolfo Ibáñez. ( email )

Mauricio Villena

Facultad de Economía y Empresa, Universidad Diego Portales ( email )

Vergara 210
Santiago, Santiag
Chile

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