The interplay of reciprocity propensity and inequality aversion in two-person games

Abstract

Economic normative models assume that economic actors are fully rational and selfish while recent studies acknowledge the emotional influence of an economic decision and call for further investigation of biases in decision making. Most decisions involve multiple actors who make decisions following a sequential path as reflected by decision trees; this contingency makes a call for the game theory contribution in the economic decision field. Two-person games are widely used to represent a typical framework of economic decisions. This study aims at further investigating psychological biases affecting decisions in a two-person sequential game. So far similar studies have focused on the principal (or first mover) behavior without paying much attention on the second mover. We want to unveil how reciprocating propensity and inequity aversion issues influence the second mover’s decision. We designed and conducted a plan of laboratory experiments to let just one of the potential biases to act in each part of each treatment allowing to highlight their hypothesized hierarchical level of intervention. First results support the dominance of inequality aversion as the main driver in reciprocal behavior and suggest a refinement of the idea of a triggering hierarchy of decision biases.