Strategic Reciprocity and Preference Formation

25 Pages Posted: 28 Mar 2022

See all articles by Jose Carrasco

Jose Carrasco

Facultad de Ingeniería y Ciencias, 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, pair- wise 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 preference-reversion: players might behave against their intrinsic type exclusively due to strategic considerations. With in- complete information the strategic component of preferences vanishes, equilibrium preferences are as selfish as possible, and thus there is no preference-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)

Facultad de Ingeniería y Ciencias, 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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