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Payoff inequity reduces the effectiveness of correlated-equilibrium recommendations

Anbarcı, N.; Feltovich, N.; Gürdal, MY.

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Authors

N. Feltovich

MY. Gürdal



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.

Citation

Anbarcı, N., Feltovich, N., & Gürdal, M. (2018). Payoff inequity reduces the effectiveness of correlated-equilibrium recommendations. European Economic Review, 108, 172-190. https://doi.org/10.1016/j.euroecorev.2018.07.003

Journal Article Type Article
Acceptance Date Jul 10, 2018
Online Publication Date Jul 17, 2018
Publication Date Sep 30, 2018
Deposit Date Aug 17, 2018
Publicly Available Date Jul 17, 2020
Journal European Economic Review
Print ISSN 0014-2921
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 108
Pages 172-190
DOI https://doi.org/10.1016/j.euroecorev.2018.07.003
Public URL https://durham-repository.worktribe.com/output/1322536

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