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A test of loyalty

Author

Listed:
  • Renaud Foucart

    (Lancaster University Management School)

  • Jonathan H. W. Tan

    (Nanyang Technological University (NTU))

Abstract

We propose and test a model of loyalty in games. Players can mutually maintain loyalty by working towards a common goal that is pareto-superior to any Nash equilibrium without it. Loyalty imposes a psychological cost on defecting in an ongoing cooperation, which is thus sustained. We distinguish loyalty from reciprocity and explain how it complements guilt aversion with two dynamic games from a field experiment conducted in a Pakistani factory. The evidence supports the validity of loyalty, which has a stronger effect within than between groups.

Suggested Citation

  • Renaud Foucart & Jonathan H. W. Tan, 2024. "A test of loyalty," Theory and Decision, Springer, vol. 97(1), pages 109-137, August.
    • Handle: RePEc:kap:theord:v:97:y:2024:i:1:d:10.1007_s11238-023-09966-4
    DOI: 10.1007/s11238-023-09966-4
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