The Importance of Foregone Options: Generalizing Social Comparisons in Sequential-Move Games

34 Pages Posted: 2 May 2007 Last revised: 6 May 2008

See all articles by Ana Espinola-Arredondo

Ana Espinola-Arredondo

Washington State University - School of Economic Sciences

Felix Munoz-Garcia

Washington State University - School of Economic Sciences

Date Written: May 6, 2008

Abstract

Recent experimental evidence supports the influence of a player's unchosen alternatives on other agent's actions. This paper examines a tractable theoretical model of reference-dependent preferences in which individuals compare other players' chosen action with respect to their unchosen alternatives. We analyze the equilibrium prediction in complete information sequential-move games, and compare it with that of standard games where players are not concerned about unchosen alternatives. We show that, without relying on interpersonal payoff comparisons (i.e., with strictly individualistic preferences), our model predicts higher cooperation among the players than standard game-theoretic models. In addition, our framework embodies different models from the literature on social status acquisition and intentions-based reciprocity as special cases. Finally, we confirm our results in three economic applications: the ultimatum bargaining game, the labor market gift exchange game, and the sequential public good game.

Keywords: Unchosen alternatives, Sequential-move games, Reference-dependent preferences, Kindness, Reciprocity

JEL Classification: C72, C78, C91

Suggested Citation

Espinola-Arredondo, Ana and Munoz-Garcia, Felix, The Importance of Foregone Options: Generalizing Social Comparisons in Sequential-Move Games (May 6, 2008). Available at SSRN: https://ssrn.com/abstract=983747 or http://dx.doi.org/10.2139/ssrn.983747

Ana Espinola-Arredondo

Washington State University - School of Economic Sciences ( email )

111C Hulbert Hall, Pullman, WA 99164
Pullman, WA 99164-4741
United States
509-335-8494 (Phone)

HOME PAGE: http://www.ses.wsu.edu/People/espinola.htm

Felix Munoz-Garcia (Contact Author)

Washington State University - School of Economic Sciences ( email )

P.O. Box 646210
Hulbert Hall 101
Pullman, WA 99164-6210
United States

HOME PAGE: http://www.ses.wsu.edu/People/munoz.htm

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