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Interdependent Preference Formation

Levent Koçkesen (), Efe Ok and Rajiv Sethi ()

Game Theory and Information from University Library of Munich, Germany

Abstract: A standard assumption in the economic approach to individual decision making is that people have independent preferences, that is, they care only about their absolute (material) payoffs. We study equilibria of the classic common pool resource extraction and public good games when some of the players have negatively interdependent preferences (in the sense that they care not only about their absolute payoffs but also about their relative payoffs) while the remainder have independent preferences. It is shown that at any equilibrium, those with interdependent preferences earn strictly higher absolute payoffs than do players with independent preferences. If the population composition evolves in accordance with any payoff monotonic evolutionary selection dynamics, then all players will have interdependent preferences in the long run. Similar (but weaker) results obtain for some other economically important classes of games in strategic form. The robustness of our findings with respect to other preference formation mechanisms such as myopic and rational socialization is also discussed.

Keywords: Interdependent Preferences; Evolution; Socialization. (search for similar items in EconPapers)
JEL-codes: C72 D62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-mic
Date: 1997-08-04
Note: Type of Document - Acrobat PDF; prepared on IBM PC ; to print on HP; pages: 35 ; figures: included
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Working Paper: Interdependent Preference Formation (1997)
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