Payoff inequity reduces the effectiveness of correlated-equilibrium recommendations

Nejat Anbarcı, Nick Feltovich, Mehmet Y. Gürdal

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)

Abstract

We examine theoretically and experimentally how individuals’ willingness to follow third-party recommendations in 2 × 2 games is affected by payoff asymmetry. We consider six versions of Battle-of-the-Sexes. Recommendations imply monetary payoffs that are equal ex ante, but unequal ex post. So, although following recommendations constitutes a Nash equilibrium under standard preferences, sufficiently inequity-averse players can rationally disobey a recommendation that would lead to a very unfavourable payoff distribution, as long as the cost of doing so is not too large. Our theoretical model incorporates inequity aversion, along with level-k reasoning. Our main experimental result is consistent with the model: as either payoff asymmetry increases or the cost of disobeying an unfavourable recommendation decreases, subjects are more likely to disobey recommendations.

Original languageEnglish
Pages (from-to)172-190
Number of pages19
JournalEuropean Economic Review
Volume108
DOIs
Publication statusPublished - 1 Sep 2018

Keywords

  • Correlated equilibrium
  • Inequity
  • Level-k reasoning
  • Other-regarding behaviour
  • Recommendations

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