Payoff inequity reduces the effectiveness of correlated-equilibrium recommendations

Nejat Anbarci (), Nick Feltovich and Mehmet Gurdal

European Economic Review, 2018, vol. 108, issue C, 172-190

Abstract: We examine theoretically and experimentally how individuals’ willingness to follow third-party recommendations in 2 × 2 games is affected by payoff asymmetry. We consider six versions of Battle-of-the-Sexes. Recommendations imply monetary payoffs that are equal ex ante, but unequal ex post. So, although following recommendations constitutes a Nash equilibrium under standard preferences, sufficiently inequity-averse players can rationally disobey a recommendation that would lead to a very unfavourable payoff distribution, as long as the cost of doing so is not too large. Our theoretical model incorporates inequity aversion, along with level-k reasoning. Our main experimental result is consistent with the model: as either payoff asymmetry increases or the cost of disobeying an unfavourable recommendation decreases, subjects are more likely to disobey recommendations.

Keywords: Correlated equilibrium; Recommendations; Inequity; Other-regarding behaviour; Level-k reasoning (search for similar items in EconPapers)
JEL-codes: C72 C92 D03 D81 D83 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:108:y:2018:i:c:p:172-190

DOI: 10.1016/j.euroecorev.2018.07.003

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