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The importance of foregone options

Author

Listed:
  • Ana Espinola-Arredondo
  • Felix Munoz-Garcia

    (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

Suggested Citation

  • Ana Espinola-Arredondo & Felix Munoz-Garcia, 2009. "The importance of foregone options," Working Papers 2008-14, School of Economic Sciences, Washington State University.
    • Handle: RePEc:wsu:wpaper:espinola-2
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    File URL: http://faculty.ses.wsu.edu/WorkingPapers/AnaEspinola/Espinola_FORGONE.pdf
    File Function: First version, 2008
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    References listed on IDEAS

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    Cited by:

    1. Ana Espinola‐Arredondo, 2009. "Free‐Riding and Cooperation in Environmental Games," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(1), pages 119-158, February.

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    More about this item

    Keywords

    Unchosen alternatives; Sequential-move games; Relative comparisons; Kindness; Reciprocity.;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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