Payoff inequity reduces the effectiveness of correlated-equilibrium recommendations

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

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
• Electronic ISSN: 1873-572X
• 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