The importance of foregone options

Ana Espinola-Arredondo and Felix Munoz-Garcia ()
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Felix Munoz-Garcia: School of Economic Sciences, Washington State University

No 2008-14, Working Papers from School of Economic Sciences, Washington State University

Abstract: Recent experimental evidence supports the influence of a player's unchosen alternatives in 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 un- chosen 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 payo¤ comparisons (i.e., with strictly individualistic agents), our model predicts higher cooperation among the players than standard game-theoretic models. We apply our results in three economic contexts: the labor market gift exchange game, the ultimatum bargaining game, and the sequential public good game. Revised Feb. 2009

Keywords: Unchosen alternatives; Sequential-move games; Relative comparisons; Kindness; Reciprocity. (search for similar items in EconPapers)
JEL-codes: C72 C78 C91 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2009-02
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-gth and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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