Georg Kirchsteiger

A theory of sequential reciprocity

Many experimental studies indicate that people are motivated by reciprocity. Rabin (1993) develops techniques for incorporating such concerns into game theory and economics. His model, however, does not fare well when applied to situations with an interesting dynamic structure (like many experimental games), because it is developed for normal form games in which information about the sequential structure of a strategic situation is suppressed. In this paper we develop a theory of reciprocity for extensive games in which the sequential structure of a strategic situation is made explicit. We propose a new solution concept— sequential reciprocity equilibrium—which is applicable to extensive games, and we prove a general equilibrium existence result. The model is applied in several examples, including some well known experimental games like the Ultimatum game and the Sequential Prisoners’ Dilemma.(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)(This abstract wa(This abstract was borrowed from another version of this item.)

The role of envy in ultimatum games

The behaviour of subjects in ultimatum bargaining experiments is very different from that predicted by standard theory. These ‘anomalies’ are frequently explained by fairness considerations. In this paper we consider the possibility that the subjects are simply envious. We derive the implications of envy for the behaviour in ultimatum games and it will be shown that envy is a potential explanation for the most important experimental ‘anomalies’. This points toward the need to set up experiments which allow to discriminate between fairness- and envy-motivated behaviour.

Insider power, wage discrimination, and fairness

The exercise of insider power is frequently considered as a major cause of involuntary unemployment. The authors show that under standard assumptions--insiders are selfish and they need not fear the loss of their job--insider power does not cause unemployment but leads to the introduction of a market-clearing, two-tier wage system. Yet, while insider power is a common phenomenon, two-tier systems are rarely observed. To explain this fact, the authors introduce interdependent preferences. They show that, if entrants exhibit a preference for fairness, the presence of insider power gives rise to an efficiency wage effect that may prevent the introduction of market-clearing, two-tier systems. Copyright 1994 by Royal Economic Society. (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.) (This abstract was borrowed from another version of this item.)

Myopic or Farsighted? An Experiment on Network Formation

Pairwise stability (Jackson and Wolinsky, 1996) is the standard stability concept in network formation. It assumes myopic behavior of the agents in the sense that they do not forecast how others might react to their actions. Assuming that agents are farsighted, related stability concepts have been proposed. We design a simple network formation experiment to test these theories. Our results provide support for farsighted stability and strongly reject the idea of myopic behavior.

Employment duration and resistance to wage reductions: Experimental evidence

One of the long-standing puzzles in economics is why wages do not fall sufficiently in recessions so as to avoid increases in unemployment. Put differently, if the competitive market wage declines, why dont employers simply force their employees to accept lower wages as well? As an alternative to reviewing statistical data we have performed an experiment with a lower competitive wage in the second phase of an employment relationship that is known to both parties. Our hypothesis is that employers will not lower wages correspondingly and that employees will resist such wage cuts. Our experiment casts two subjects in the highly stylized roles of employer and employee. We find at most mild evidence for resistance to wage declines. Instead, the experimental results can be more fruitfully interpreted in terms of an ultimatum game, in which some surplus between employers and employees is split. In this view, wages and their lack of decline are simply the mechanical tool for accomplishing this split.

Intransitive Choices Based on Transitive Preferences: The Case of Menu-Dependent Information

The paper considers decision contexts in which the set of alternatives from which choices have to be made (the ‘menu’) may convey information about the desirability of these alternatives. Our analysis is motivated by the fact that in specifying an appropriate description of a choice situation an outside observer always has to neglect some ‘dimensions’ of the decision problem. The central claim is that properties of observed behaviour may depend crucially on the neglected dimensions even when their influence is arbitrarily small. Specifically, we prove the following result. Suppose that in a discrete choice model an agents beliefs about the ‘quality’ of the available alternatives depend on the specific menu to choose from. Then, even when the difference in beliefs given different menus is arbitrarily small (but positive), any practicable description of the decision situation necessarily implies that cyclic choices will be observed. The result suggests that transitivity - as a condition on observable behaviour - is rather questionable in any context where one cannot completely exclude the possibility that menu-dependent information may play some role.

Assignment Procedure Biases in Randomised Policy Experiments

Randomized controlled trials (RCT) have become a dominant empirical tool in applied economics. The internal validity of RCTs crucially depends on the (implicit) assumption that the procedure assigning subjects to treatment and control groups has no effect on behavior. We show theoretically that this assumption is violated when people are motivated by belief-dependent preferences and care about the intentions of others. The choice of assignment procedure influences subjects’ behavior and, consequently, the RCTs’ findings. Strikingly, even a credible and explicit randomization procedure does not guarantee an unbiased prediction of the impact of a general introduction of the policy.

Learning to Like What You Have

The endowment e®ect describes the fact that people demand much more to give up an object than they are willing to spend to acquire it. The existence of this e®ect has been documented in numerous experiments. We attempt to explain this e®ect by showing that evolution favors individuals whose preferences embody an endowment e®ect. The reason is that an endowment e®ect improves ones bargaining position in bilateral trades. We show that for a general class of evolutionary processes almost all individuals will have a strictly positive and ̄nite endowment e®ect. JEL{ classi ̄cation numbers: C73, C79, D00. We thank Ted Bergstrom, Lorne Carmichael, Simon GÄ achter, Andras LÄ o2er, Clemens Puppe and Frank Riedel for helpful comments. Institut fÄ ur Wirtschaftstheorie, Spandauer Str. 1, 10178 Berlin, Germany, FAX: +49{30{2093-5619, E{mail: oechsler@wiwi.hu-berlin.de

Generosity motivated by acceptance - evolutionary analysis of an anticipation game.

We here present both experimental and theoretical results for an Anticipation Game, a two-stage game wherein the standard Dictator Game is played after a matching phase wherein receivers use the past actions of dictators to decide whether to interact with them. The experimental results for three different treatments show that partner choice induces dictators to adjust their donations towards the expectations of the receivers, giving significantly more than expected in the standard Dictator Game. Adding noise to the dictators’ reputation lowers the donations, underlining that their actions are determined by the knowledge provided to receivers. Secondly, we show that the recently proposed stochastic evolutionary model where payoff only weakly drives evolution and individuals can make mistakes requires some adaptations to explain the experimental results. We observe that the model fails in reproducing the heterogeneous strategy distributions. We show here that by explicitly modelling the dictators’ probability of acceptance by receivers and introducing a parameter that reflects the dictators’ capacity to anticipate future gains produces a closer fit to the aforementioned strategy distributions. This new parameter has the important advantage that it explains where the dictators’ generosity comes from, revealing that anticipating future acceptance is the key to success.

The Endogenous Evolution of Market Institutions An Experimental Investigation

We study an experimental market in which the structure of the information flows is endogenized. When making an offer, traders choose not only the price at which they are prepared to trade, but also the subset of traders they want to inform about the offer. This design allows for two extreme institutions as special cases. If traders always inform every other trader about each offer, the resulting institution is equivalent to a double auction. If, on the other hand, traders always inform only one other trader about each offer, the resulting institution is equivalent to a decentralized bargaining market. The institution that actually evolved in the experiments, however, was in between the two extreme cases. Subjects typically informed all traders of the other market side, but none of their own side. This endogenously evolving institution, however, turned out to have the same properties as the double auction.