On the Irrelevance of Risk Attitudes in Repeated Two-Outcome Games

UCSD Economics Discussion Paper 97-34

Posted: 16 Mar 1998

See all articles by John Wooders

John Wooders

New York University Abu Dhabi; University Technology Sydney

Jason M. Shachat

National University of Singapore (NUS) - Department of Economics

Date Written: December 1997

Abstract

We analyze the equilibria of two-person supergames consisting of the sequential play of a finite collection of stage games, where each stage game is strictly competitive and has two outcomes for each player. We show that in any Nash equilibrium of the supergame, play at each stage is a Nash equilibrium of the stage game provided players' preferences over certain outcomes in the supergame satisfy a weak monotonicity condition. Thus, equilibrium play in such supergames is invariant for a large class of preferences and, in particular, it does not depend on the players' attitudes toward risk. This enables us to conclude, for example, that O'Neill's (1985) experimental test of Nash equilibrium adequately controls for risk attitudes, despite the fact that the supergame obtained by repeating his two-outcome stage game has more than two outcomes. We also establish an invariance result for games with more than two players when the solution concept is subgame perfection.

JEL Classification: C72, C92

Suggested Citation

Wooders, John C. and Shachat, Jason, On the Irrelevance of Risk Attitudes in Repeated Two-Outcome Games (December 1997). UCSD Economics Discussion Paper 97-34. Available at SSRN: https://ssrn.com/abstract=60730

John C. Wooders

New York University Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates
+971 126285802 (Phone)

HOME PAGE: http://johnwooders.com

University Technology Sydney ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

HOME PAGE: http://johnwooders.com/

Jason Shachat (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

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