Article

Interdependent Preference Models as a Theory of Intentions

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Abstract

We provide a preference framework for situations in which "intentions matter." A behavioral type describes the individual's observable characteristics and the individual's personality. We define a canonical behavioral type space and provide a condition that identifies collections of behavioral types that are equivalent to components of the canonical type space. We also develop a reciprocity model within our framework and show how it enables us to distinguish between strategic (or instrumental) generosity and true generosity.

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... For example, in a leading paper Levine [23] (henceforth Levine) takes this approach to analyze experimental evidence in ultimatum, centipede, and public goods experiments. Gul and Pesendorfer [18] lay the foundations of interdependence between behavioral types, inde-pendent of the environment that decision-makers interact. ...
... 17 The denominator thus serves as a normalization, and will always be (1 − γ)B = 15. 18 Finally, α captures the measure of subjects' blame-sensitivity. The objective of the subject in stage 2 is to choose a vector of punishments, k j 's, to maximize his utility. ...
... For a more general approach we refer the reader to Gul and Pesendorfer[18]. ...
Article
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The theory of reciprocity is predicated on the assumption that people are willing to reward kind acts and to punish unkind ones. This assumption raises the question of what kindness is. In this paper, we offer a novel definition of kindness based on a notion of blame. This notion states that for player j to judge whether or not player i is kind to him, player j has to put himself in the position of player i, and ask if he would act in a manner that is worse than what he believes player i does. If player j would act in a worse manner than player i, then we say that player j does not blame player i. If, however, player j would be nicer than player i, then we say that player j blames player i. We believe this notion is a natural, intuitive and empirically functional way to explain the motives of people engaging in reciprocal behavior. After developing the conceptual framework, we test this concept by using data from two laboratory experiments and find significant support for the theory.
... The utility agents derive from the environmental consumption depends on the kind of (pro-or anti-ecologist) agent one randomly meets when sharing the same consumption, and thus on the (positive or negative) externalities such a meeting may produce. In the words of Gul and Pesendorfer (2016) and Bergemann et al. (2017), agents have interdependent preferences. Similarly to the former work, we assume that each agent may recognise with certainty the type of agent she encounters, whereas Bergemann et al. (2017) assume that each agent's type is not explicit and agents base their expectations according to their beliefs. ...
... Similarly to the former work, we assume that each agent may recognise with certainty the type of agent she encounters, whereas Bergemann et al. (2017) assume that each agent's type is not explicit and agents base their expectations according to their beliefs. In our work agents are not concerned with the intentions underlying the behaviour of others, i.e. they decide what to do according to the behaviour of the agent they are paired with, not according to the whole preference set of the latter (see Falk et al., 2008;Gul and Pesendorfer, 2016, for examples of works investigating intentions). ...
... Note that this preference ordering is similar to the one of the Ecologist, with the difference that (N P, P ) is now the least preferred outcome. The three types identified so far are analogous to the ones considered by Gul and Pesendorfer (2016), who defined them respectively as Generous, Spiteful, and Conditionally Generous. We expand on the variety of types by including the following two characterizations. ...
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The introduction of an environmental policy to foster a virtuous behaviour does not automatically establish a social norm within a population, i.e. it might not be socially accepted and enforced. Some agents feel compelled to abide to the environmental social norm and embrace it, while other agents do not. Some might want to imitate their peers, while others might prefer not to conform and play the maverick role. In this model we describe this heterogeneity of preferences by proposing a taxonomy of five possible types of agents that enriches the traditional triplet presented in the literature. We then employ a random matching model to study how a social norm spreads across the population when its composition changes. By considering three relevant population compositions (scenarios), we show that what is most important for the successful diffusion of social norms is not whether agents abide to it or not, but why. Declaration of Interest: none.
... For example, it is unclear how type-based models, i.e. Levine (1998) or Gul and Pesendorfer (2016), could explain player 2's response. Whenever it is optimal for player 1 to cooperate in both games, player 2's belief about 1's type must be the same. ...
... It would represent a similar mechanism to the one put forward by Rotemberg (2008) for altruism. In this regard, the extension would adopt ideas from the literature of typebased reciprocity, Levine (1998), Ellingsen and Johannesson (2008) and Gul and Pesendorfer (2016). While these models can often be simpler to solve, it is unclear how they could explain the behavior in Orhun (2018). ...
... Von Siemens (2013) In contrast to type-based models, intention-based reciprocity such as Rabin (1993) and Dufwenberg and Kirchsteiger (2004) requires more care when moving from complete to incomplete information. Type-based models assume heterogeneity in people's level of altruism and model reciprocity by assuming that people care more about those who are more altruistic (Levine (1998), Gul and Pesendorfer (2016)). 1 In this type of models, generous actions are rewarded because they signal a high level of altruism. Adding private information about material payoffs simply adds another dimension to such signalling games. 2 Intention-based models, instead, rely on an endogenous reference point to model kindness. ...
Thesis
This thesis contains two theoretical essays on reciprocity and one that analyzes the effects of perception biases on learning and decision-making. In the first chapter, I propose a new theory of intention-based reciprocity that addresses the question of when a mutually beneficial action is kind. When both benefit from the action, a player’s motive is unclear: he may be perceived as kind for improving the other player’s payoff, or as self-interested and not-kind for improving his own. I use trust as an intuitive mechanism to solve this ambiguity. Whenever a player puts himself in a vulnerable position by taking such an action, he can be perceived as kind. In contrast, if this action makes him better off than his alternative actions do, even if it is met by the most selfish response, he cannot be kind. My model explains why papers in the literature fail to find (much) positive reciprocity when players can reward and punish. The second chapter extends my theory of reciprocity to incomplete information. I outline how reciprocity can give rise to pay-what-you-want pricing schemes. In the classic bilateral trade setting, I show that sequential interactions can be more efficient than normal form mechanisms when some people are motivated by reciprocity. Reciprocity creates incentives for information sharing. The last chapter is co-authored with Manuel Staab. We study the effects of perception biases and incorrect priors on learning behavior, and the welfare ranking of information experiments. We find that both types of biases by themselves reduce expected utility in a model where payoff relevant actions also generate informative signals, i.e. when actions constitute information experiments. However, experiments can be affected to different degrees by these biases. We provide necessary and sufficient conditions for when any binary ranking of action profiles can be reversed. Building on these findings, we show that an agent can be better off suffering from both biases rather than just one.
... Models of type-based reciprocity (Levine 1998;Strassmair 2009;Gul and Pesendorfer 2016) assume that people are either selfish or altruistic. The selfish type always cares only about self-interest, while the altruistic type also cares about other individuals' welfare. ...
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This paper studies how in-group social connections affect outsiders’ pro-social behavior towards group members. We employ an indirect investment game, in which a recipient of a good deed has to return to a beneficiary, instead of the original donor. We introduce the naturally-occurring social connections between the donor and the beneficiary, and show that such connections increase the recipients’ transfer to a beneficiary by 42% when the donor’s transfer is above average. The spillover does not function through the signaling of the donor’s expectations, and altruism with an endogenous reference group explains our results well.
... We hypothesize that " type preferences " introduced by Gul and Pesendorfer (2010) was a contributing motive for gratitude. There has been prior work on altruistic types. ...
Article
Recent and accumulating evidence has established that though people are not completely selfish, they are not as altruistic as might have been suggested by prior experimental results. These papers found decreased giving if the experiment was double-blind, or allowed “silently exiting”. Evidence for positive reciprocity, where subjects give more than dictators with the same endowment, has always been rare. However, Lin and Ong 2011 found significant positive reciprocity in a double-blind trust game which the 2nd player knew that the 1st player was unaware of the possibility of reciprocation. Furthermore, though 2nd players could silently exit, none did. We investigated the possibility that 1st players’ could better signal their “altruism type” in their setup, as suggested by the theory of type preferences of Gul and Pesendorfer (2011). To test this, we introduced a 3rd player into Lin and Ong’s setup, again unknown to the 1st player, who could give part of a now exogenously fixed endowment to the 1st player after observing 1st player giving to the 2nd player. We found that 3rd players’ giving to 1st players’ was significantly correlated with 1st players’ giving to the 2nd players, and not significantly correlated with endowment. Furthermore, our exogenous endowment allowed us to show that this result was not consistent with 1st players exerting social influence on 3rd players. Unlike prior studies, we evinced that the explicitness of double-blindness with silent exiting made a difference only for the lowest level of endowment. Our result supports prior results which showed that player characteristics, like their facial features, can be predictors of behavior. However, to our knowledge, our study is the first to identify the apparent altruism type of the recipient as the stimulus for giving to them.
... when employees infer that their manager or the organization cares about their wellbeing, they reciprocate with increased commitment, loyalty, and performance (see, for example, the reviews by Rhoades andEisenberger 2002 andCropanzano andMitchell 2005). As pointed out by Gul and Pesendorfer (2010), this approach facilitates analysis and allows to distinguish between genuine kindness and instrumental kindness. ...
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Economen benadrukken traditioneel het belang van financiële prikkels voor arbeidsmotivatie. De laatste jaren is er ook aandacht voor andere relevante motieven. Een van deze motieven is reciprociteit, wat betekent dat mensen vijandige en vriendelijke daden op overeenkomstige wijze beantwoorden. Reciprociteit impliceert dat werknemers bereid zijn een stapje harder te lopen wanneer werkgevers laten blijken dat ze om hun personeel geven. Het eerste gedeelte van dit proefschrift bestudeert theoretisch de interactie tussen financiële prikkels en de reciprociteit van werknemers. Ter illustratie, ik bepaal de optimale combinatie van vast loon en prestatieloon wanneer werknemers reciproque zijn. Daarnaast leid ik af dat wanneer werknemers gevoelig zijn voor de aandacht en erkenning van hun werkgever, het aantrekkelijker is om werknemers te motiveren door ze een promotie in het vooruitzicht te stellen, dan door ze individueel prestatieloon te geven. Analyse van GSOEP data laat zien dat er een positieve correlatie is tussen de mate waarin iemand reciproque is en de kans dat hij een promotie in het vooruitzicht heeft. Het tweede deel van het proefschrift beschrijft twee veldexperimenten die in een Nederlandse winkelketen uitgevoerd zijn. Beide experimenten testen voorspellingen van toernooitheorie. Het eerste experiment test hoe tussentijdse feedback de navolgende prestaties beïnvloedt. Het tweede experiment test voorspellingen over de invloed van ruis in de prestatiemaatstaf en de verdeling van prijzengeld in een eliminatietoernooi over twee ronden. Onze bevindingen komen grotendeels overeen met de voorspellingen.
... However, we allow for dependence of each v i on the entire profile θ ∈ . With this, we are also able to consider models of interdependent preferences as in Gul and Pesendorfer (2016). 30 For simplicity, we will always consider the implied utility function defined over terminal histories and personal features ...
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We consider multi-stage games with incomplete information, and we analyze strategic reasoning by means of epistemic events within a “total” state space made of all the profiles of behaviors (paths of play) and possibly incoherent infinite hierarchies of conditional beliefs. Thus, we do not rely on types structures, or similar epistemic models. Subjective rationality is defined by the conjunction of coherence of belief hierarchies, rational planning, and consistency between plan and on-path behavior. Since consistent hierarchies uniquely induce beliefs about behavior and belief hierarchies of others, we can define rationality and common strong belief in rationality, and analyze their behavioral and low-order beliefs implications, which are characterized by strong rationalizability. Our approach allows to extend known techniques to the epistemic analysis of psychological games where the utilities of outcomes depend on beliefs of order k or lower. This covers almost all applications of psychological game theory.
... In an extension to a simultaneous game with mutual reciprocity, he also obtains gift-exchange equilibria. Arbak and Kranich (2005) and Non (2012) are signalling models (Levine 1998) where preferences are assumed to be conditional on the type of the opponent (Gul and Pesendorfer 2010). In these models, the existence of some firms with social preferences might enable other firms to imitate and profit from strategic kindness. ...
Article
This paper explores the limitations of intention-based social preferences as an explanation of gift-exchange between a firm and a worker. In a framework with one self-interested and one reciprocal player, gift-giving never arises in equilibrium. Instead, any equilibrium in a large class of multistage games must involve mutually unkind behavior of both players. Besides gift-exchange, this class of games also includes moral hazard models and the rotten kid framework. Even though equilibrium behavior may appear positively reciprocal in some of these games, the self-interested player never benefits from reciprocity. We discuss the relation of these results to the theoretical and empirical literature on gift-exchange in employment relations.
... While critically analysing the functions and information input syntax, the information architecture and the possible probabilistic risk can moderated in the reciprocating dependency models. In the reciprocating dependency model the flow of information is complex and involves the operations and control (Gul, 2010). Operations and control is the centre of business where input from the every source centralised and worked on. ...
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Contents: The rudiments of set theory.- Number systems.- Linear analysis.- Cardinal numbers.- Ordinal numbers.- Metric spaces.- Continuity and limits.- Completeness and compactness.- General topology.- Bibliography.- Index.
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We de.ne and analyze a strategic topology on types in the Harsanyi-Mertens-Zamir universal type space, where two types are close if their strategic behavior is similar in all strategic situations. For a .xed game and action de.ne the distance be-tween a pair of types as the diþerence between the smallest for which the action is interim correlated rationalizable. We de.ne a strategic topology in which a sequence of types converges if and only if this distance tends to zero for any action and game. Thus a sequence of types converges in the strategic topology if that smallest does not jump either up or down in the limit. As applied to sequences, the upper-semicontinuity prop-erty is equivalent to convergence in the product topology, but the lower-semicontinuity property is a strictly stronger requirement, as shown by the electronic mail game. In the strategic topology, the set of .nite types (types describable by .nite type spaces) is dense but the set of .nite common-prior types is not.
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The motivation of decision makers who care for various emotions, intentions-based reciprocity, or the opinions of others may depend directly on beliefs (about choices, beliefs, or information). Geanakoplos, Pearce and Stacchetti [J. Geanakoplos, D. Pearce, E. Stacchetti, Psychological games and sequential rationality, Games Econ. Behav. 1 (1989) 60-79] point out that traditional game theory is ill-equipped to address such matters, and they pioneer a new framework which does. However, their toolbox - psychological game theory - incorporates several restrictions that rule out plausible forms of belief-dependent motivation. Building on recent work on dynamic interactive epistemology, we propose a more general framework. Updated higher-order beliefs, beliefs of others, and plans of action may influence motivation, and we can capture dynamic psychological effects (such as sequential reciprocity, psychological forward induction, and regret) that were previously ruled out. We develop solution concepts, provide examples, explore properties, and suggest avenues for future research.
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While there is an extensive literature on the theory of infinitely repeated games, empirical evidence on how "the shadow of the future" affects behavior is scarce and inconclusive. I simulate infinitely repeated prisoner's dilemma games in the lab with a random continuation rule. The experimental design represents an improvement over the existing literature by including sessions with finite repeated games as controls and a large number of players per session (which allows for learning without contagion effects). I find that the shadow of the future matters not only by significantly reducing opportunistic behavior, but also because its impact closely follows theoretical predictions.
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Game-theoretic analysis often leads to consideration of an infinite hierarchy of beliefs for each player. Harsanyi suggested that such a hierarchy of beliefs could be summarized in a single entity, called the player′s type. This paper provides an elementary construction, complementary to the construction already given in [J-F. Mertens and S. Zamir, Formulation of Bayesian analysis for games with incomplete information, Int. J. Game Theory14 (1985), 1–29] of Harsanyi′s notion of a type. It is shown that if a player′s type is coherent then it induces a belief over the types of the other players. Imposing common knowledge of coherency closes the model of beliefs. We go on to discuss the question that often arises as to the sense in which the structure of a game-theoretic model is, or can be assumed to be, common knowledge. Journal of Economic Literature Classification Number: 026.
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This paper shows that increases in the minimum wage rate can have ambiguous effects on the working hours and welfare of employed workers in competitive labor markets. The reason is that employers may not comply with the minimum wage legislation and instead pay a lower subminimum wage rate. If workers are risk neutral, we prove that working hours and welfare are invariant to the minimum wage rate. If workers are risk averse and imprudent (which is the empirically likely case), then working hours decrease with the minimum wage rate, while their welfare may increase.
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This paper shows that increases in the minimum wage rate can have ambiguous effects on the working hours and welfare of employed workers in competitive labor markets. The reason is that employers may not comply with the minimum wage legislation and instead pay a lower subminimum wage rate. If workers are risk neutral, we prove that working hours and welfare are invariant to the minimum wage rate. If workers are risk averse and imprudent (which is the empirically likely case), then working hours decrease with the minimum wage rate, while their welfare may increase.
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People like to help those who are helping them and to hurt those who are hurting them. Outcomes rejecting such motivations are called fairness equilibria. Outcomes are mutual-max when each person maximizes the other's material payoffs, and mutual-min when each person minimizes the other's payoffs. It is shown that every mutual-max or mutual-min Nash equilibrium is a fairness equilibrium. If payoffs are small, fairness equilibria are roughly the set of mutual-max and mutual-min outcomes; if payoffs are large, fairness equilibria are roughly the set of Nash equilibria. Several economic examples are considered and possible welfare implications of fairness are explored. Copyright 1993 by American Economic Association.
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An explicit model of communication and informational equilibrium is constructed and some results generalizing Aumann's theorem on the impossibility of agreeing to disagree are obtained, together with an example showing that full rationality may be sub-optimal.
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Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.
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Building upon recent models of social utility theory, this paper outlines a theoretical framework for examining the effect of causal attributions on choice in social decision making. The results of three empirical studies are reported, which identify two dimensions of external attribution that affect how individuals weight absolute versus comparative payoffs. These dimensions are whether the causal agent is perceived to be human versus non-human (e.g., an act of nature) and the degree to which human agents are perceived to have an interest in the outcome of the decision. Together, these findings have implications for social welfare policies, dispute resolution, and game theoretic models.
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Cost-effectiveness analysis, which ranks projects by quality adjusted life years gained per dollar spent, is widely used in the evaluation of health interventions. We show that cost effectiveness analysis can be derived from two axioms: society prefers Pareto improvements and society values discounted life years, lived in perfect health, equally for each person. These axioms generate a unique social preference ordering, allowing us to find the cost effectiveness threshold to which health projects should be funded, and to extend cost effectiveness analysis to give a consistent method of project evaluation across all sectors of the economy.
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Experiments, ethnography, and introspection provide evidence economic agents do not act to maximize their narrowly defined self interest. Expanding the domain of preferences to include the utility of others provides a coherent way to extend rational choice theory. There are two approaches for including extended or social preferences in strategic models. One posits that agents have extended preferences, but maintains the conventional assumption that these preferences are stable. Prominent examples of this approach permit agents to exhibit concern for status, inequality, and social welfare. The other approach permits the strategic context to determine the nature of individual preferences. Context-dependent preferences can capture the possibility that agents are motivated in part by reciprocity. They may sacrifice personal consumption in order to lower the utility of unkind agents or to raise the utility of kind agents. This paper surveys the evidence in favor of social preferences and describes the implications of the leading theoretical models of extended preferences. It presents behavioral assumptions that characterize different types of social preferences. It investigates the extent to which social preferences may arise as the limit of evolutionary processes. It discusses the relationship between norms of reciprocity and social preferences in repeated interactions.
Interdependent Preferences and Strategic Distinguishability, " mimeo, Princeton University When Social Outcomes Aren't Fair: The Effect of Causal Attributions on Preferences
  • D Bergemann
  • S Morris
  • S Takahashi
Bergemann, D. and S. Morris and S. Takahashi (2010) " Interdependent Preferences and Strategic Distinguishability, " mimeo, Princeton University. Blount, S. (1995), " When Social Outcomes Aren't Fair: The Effect of Causal Attributions on Preferences, " Organizational Behavior and Human Decision Processes, 63, 131–44.
A Theory of Reciprocity Games and Economic Be-havior
  • A Falk
  • U Fishbacher
Falk A. and U. Fishbacher (2006) " A Theory of Reciprocity, " Games and Economic Be-havior, 54(2), 293–315.
Testing Theories of Fairness -Intentions Matter
  • A Falk
  • E Fehr
  • U Fishbacher
Falk A., E. Fehr and U. Fishbacher (2008) "Testing Theories of Fairness -Intentions Matter", Games and Economic Behavior, 62(1), 287-303.