Martin Dufwenberg

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.)

Measuring Beliefs in an Experimental Lost Wallet Game

Abstract We measure beliefs in an experimental game. Player 1 may take x x (our treatment variable), the more likely is player 1 to take the x . Out of those who leave the x , many expect to get back less than x . There is no positive correlation between x and the amount y that 2 allocates to 1. However, there is positive correlation between y and 2s expectation of 1s expectation of y . Journal of Economic Literature Classification Numbers: C72, C92.

Dynamic psychological games

Building on recent work on dynamic interactive epistemology, we extend the analysis of extensive-form psychological games (Geneakoplos, Pearce & Stacchetti, Games and Economic Behavior, 1989) to include conditional higher-order beliefs and enlarged domains of payoff functions. The approach allows modeling dynamic psychological effects (such as sequential reciprocity, psychological forward induction, and regret) that are ruled out when epistemic types are identified with hierarchies of initial beliefs. We define a notion of psychological sequential equilibrium, which generalizes the sequential equilibrium notion for traditional games, for which we prove existence under mild assumptions. Our framework also allows us to directly formulate assumptions about ‘dynamic’ rationality and interactive beliefs in order to explore strategic interaction without assuming that players beliefs are coordinated on an equilibrium. In particular, we provide an exploration of (extensive-form) rationalizability in psychological games.

The Framing of Games and the Psychology of Play

Psychological game theory can provide rational-choice-based framing effects; frames influence beliefs, beliefs influence motivations. We explain this theoretically and explore empirical relevance experimentally. In a 2×2 design of one-shot public good games we show that frames affect subjectʼs first- and second-order beliefs and contributions. From a psychological game-theoretic framework we derive two mutually compatible hypotheses about guilt aversion and reciprocity under which contributions are related to second- and first-order beliefs, respectively. Our results are consistent with either.

Bubbles and Experience: An Experiment

We investigate the occurrence of bubble-crash pricing patterns in laboratory financial markets with a mixture of experienced and inexperienced traders. We find that even with a minority of experienced traders, bubbles are substantially abated.

Triangulating the Neural, Psychological, and Economic Bases of Guilt Aversion

VIDEO ABSTRACT Why do people often choose to cooperate when they can better serve their interests by acting selfishly? One potential mechanism is that the anticipation of guilt can motivate cooperative behavior. We utilize a formal model of this process in conjunction with fMRI to identify brain regions that mediate cooperative behavior while participants decided whether or not to honor a partners trust. We observed increased activation in the insula, supplementary motor area, dorsolateral prefrontal cortex (PFC), and temporal parietal junction when participants were behaving consistent with our model, and found increased activity in the ventromedial PFC, dorsomedial PFC, and nucleus accumbens when they chose to abuse trust and maximize their financial reward. This study demonstrates that a neural system previously implicated in expectation processing plays a critical role in assessing moral sentiments that in turn can sustain human cooperation in the face of temptation.

Information disclosure in auctions: an experiment

We report experimental results on the importance of information disclosure policy in first-price sealed-bid auctions. Interaction takes place in 10 periods according to a random-matching protocol, and we control the level of information feedback bidders receive after each period. When bidders are informed about the losing bids in previous periods, prices are higher than the theoretical prediction. However, when this information is not revealed the bidding becomes more competitive, and the bids come close to the theoretical prediction. We suggest that a signaling phenomenon may be important for explaining these results.

Marital investments, time consistency and emotions

Abstract A benchmark model of a married couple’s educational investment yields an inefficient outcome due to the possibility of opportunistic divorce. Motivated by findings in social psychology, I use psychological game theory to incorporate belief-dependent guilt feelings. Multiple equilibria become possible. Some marriages have inefficient under-investment. Some have efficient outcomes and preclude divorce. If guilt is sufficiently important, a life-long efficient marriage is implied because a spouse may signal a trust so strong as to force the partner to hold beliefs that make divorce unattractive.

An Experimental Test of Direct and Indirect Reciprocity in Case of Complete and Incomplete Information

Direct reciprocity means to respond in kind to another person whereas indirect reciprocity is understood here as rewarding someone else. We perform corresponding experiments which use a similar underlying structure as the reciprocity experiment of Berg, Dickhaut, and McCabe (1995). Another variation concerns the information about the multiplier of donations where we compare the benchmark case with a commonly known multiplier to a condition where the multiplier is known for sure only by donators. Questions which we try to answer are: Will indirect reciprocity induce higher or lower donations?, will donators with the high multiplier hide behind the small one?, how do receivers respond to the different situations?

Social Norms and Moral Hazard

We examine the impact of social rewards in an unemployment insurance context. A social norm requires effort in proportion to perceived talent, but individuals cunningly choose effort so as to manipulate the perception of their talent. The model predicts that low talented individuals increase effort in response to more generous unemployment insurance. The welfare consequences of the social rewards are ambiguous. Social rewards boost effort, but for individuals with low talent more than any real economic concern can justify. Moreover, the distribution of social respect is slanted in favour of the more talented.