Abstract: Many experimental studies indicate that people are motivated by reciprocity. Rabin (1993) develops techniques for incorporating such concerns into game theory and economics. His model, however, does not fare well when applied to situations with an interesting dynamic structure (like many experimental games), because it is developed for normal form games in which information about the sequential structure of a strategic situation is suppressed. In this paper we develop a theory of reciprocity for extensive games in which the sequential structure of a strategic situation is made explicit. We propose a new solution concept— sequential reciprocity equilibrium—which is applicable to extensive games, and we prove a general equilibrium existence result. The model is applied in several examples, including some well known experimental games like the Ultimatum game and the Sequential Prisoners’ Dilemma.

We introduce a parametric model of other-regarding preferences. The income distribution, other status considerations, and the kindness or unldndness of others' choices ("intentions") systematically affect a person's emotional state. The emotional state then determines the marginal rate of substitution between own and others' payoffs, and thus the person's subsequent choices.

During the last two decades economists have made much progress in understanding incentives, contracts and organizations. Yet, they constrained their attention to a very narrow and empirically questionable view of human motivation. The purpose of this paper is to show that this narrow view of human motivation may severely limit understanding the determinants and effects of incentives. Economists may fail to understand the levels and the changes in behaviour if they neglect motives like the desire to reciprocate or the desire to avoid social disapproval. We show that monetary incentives may backfire and reduce the performance of agents or their compliance with rules. In addition, these motives may generate very powerful incentives themselves.

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This paper studies bilateral multi-issue negotiation between self-interested autonomous agents. Now, there are a number of different procedures that can be used for this process; the three main ones being the package deal procedure in which all the issues are bundled and discussed together, the simultaneous procedure in which the issues are discussed simultaneously but independently of each other, and the sequential procedure in which the issues are discussed one after another. Since each of them yields a different outcome, a key problem is to decide which one to use in which circumstances. Specifically, we consider this question for a model in which the agents have time constraints (in the form of both deadlines and discount factors) and information uncertainty (in that the agents do not know the opponent’s utility function). For this model, we consider issues that are both independent and those that are interdependent and determine equilibria for each case for each procedure. In so doing, we show that the package deal is in fact the optimal procedure for each party. We then go on to show that, although the package deal may be computationally more complex than the other two procedures, it generates Pareto optimal outcomes (unlike the other two), it has similar earliest and latest possible times of agreement to the simultaneous procedure (which is better than the sequential procedure), and that it (like the other two procedures) generates a unique outcome only under certain conditions (which we define). 1.

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The motivation of decision makers who care for emotions, reciprocity, or social conformity may depend directly on beliefs (about choices, beliefs, or information). Geanakoplos, Pearce & Stacchetti (Games and Economic Behavior, 1989) 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, regret, and anxiety) that were previously ruled out. We develop solution concepts, provide examples, and explore properties.

Abstract. This paper develops a theory of revealed preferences over one’s own and others’monetary payo¤s. We introduce “more altruistic than”(MAT), a partial ordering over preferences, and interpret it with known parametric models. We also introduce and illustrate “more generous than ” (MGT), a partial ordering over opportunity sets. Several recent discussions of altruism focus on two player extensive form games of complete information in which the …rst mover (FM) chooses a more or less generous opportunity set for the second mover (SM). Here reciprocity can be formalized as the assertion that an MGT choice by the FM will elicit MAT preferences in the SM and, furthermore, that the e¤ect on preferences is stronger for acts of commision than acts of ommision by FM. We state and prove propositions on the observable consequences of these assertions. Then we test those propositions using existing data from investment games with dictator controls and Stackelberg games and new data from Stackelberg mini-games. The test results provide support for the theory of revealed altruism.

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