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The Influence of Information Externalities on the Value of Reputation Building - An Experiment

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  • Gary E. Bolton
  • Axel Ockenfels

Abstract

We observe that information externalities arise in sequential equilibrium of the chain store game such that the amount of reputation building among partners differs from that among strangers. No matching effects are predicted for the trust game. Our experiment confirms the qualitative chain store prediction, but information externalities also show up in the trust game.

Suggested Citation

  • Gary E. Bolton & Axel Ockenfels, 2005. "The Influence of Information Externalities on the Value of Reputation Building - An Experiment," Working Paper Series in Economics 17, University of Cologne, Department of Economics.
    • Handle: RePEc:kls:series:0017
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    References listed on IDEAS

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    3. Drew Fudenberg & David K. Levine, 2008. "Reputation And Equilibrium Selection In Games With A Patient Player," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 7, pages 123-142, World Scientific Publishing Co. Pte. Ltd..
    4. Brandts, Jordi & Figueras, Neus, 2003. "An exploration of reputation formation in experimental games," Journal of Economic Behavior & Organization, Elsevier, vol. 50(1), pages 89-115, January.
    5. McKelvey, Richard D & Palfrey, Thomas R, 1992. "An Experimental Study of the Centipede Game," Econometrica, Econometric Society, vol. 60(4), pages 803-836, July.
    6. Yun Joo Jung & John H. Kagel & Dan Levin, 1994. "On the Existence of Predatory Pricing: An Experimental Study of Reputation and Entry Deterrence in the Chain-Store Game," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 72-93, Spring.
    7. Camerer, Colin & Weigelt, Keith, 1988. "Experimental Tests of a Sequential Equilibrium Reputation Model," Econometrica, Econometric Society, vol. 56(1), pages 1-36, January.
    8. Neral, John & Ochs, Jack, 1992. "The Sequential Equilibrium Theory of Reputation Building: A Further Test," Econometrica, Econometric Society, vol. 60(5), pages 1151-1169, September.
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    Cited by:

    1. Ilukor, John & Birner, Regina, 2013. "Veterinarians, Paraprofessionals, Farmers and the Quality of Clinical Veterinary Services: A role play experiment," 2013 Fourth International Conference, September 22-25, 2013, Hammamet, Tunisia 160476, African Association of Agricultural Economists (AAAE).
    2. Christoph March, 2019. "The Behavioral Economics of Artificial Intelligence: Lessons from Experiments with Computer Players," CESifo Working Paper Series 7926, CESifo.
    3. Gary E Bolton & Claudia Loebbecke & Axel Ockenfels, 2007. "How Social Reputation Networks Interact with Competition in Anonymous Online Trading: An Experimental Study," Working Paper Series in Economics 32, University of Cologne, Department of Economics.

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