Review of Economic Design

, Volume 18, Issue 4, pp 243–264 | Cite as

What drives failure to maximize payoffs in the lab? A test of the inequality aversion hypothesis

Original Paper

Abstract

Experiments based on the Beard and Beil (Manag Sci 40(2):252–262, 1994) two-player coordination game robustly show that coordination failures arise as a result of two puzzling behaviors: (i) subjects are not willing to rely on others’ self-interested maximization, and (ii) self-interested maximization is not ubiquitous. Such behavior is often considered to challenge the relevance of subgame perfectness as an equilibrium selection criterion, since weakly dominated strategies are actually used. We report on new experiments investigating whether inequality in payoffs between players, maintained in most lab implementations of this game, drives such behavior. Our data clearly show that the failure to maximize personal payoffs, as well as the fear that others might act this way, do not stem from inequality aversion. This result is robust to varying the saliency of decisions, repetition-based learning and cultural differences between France and Poland.

Keywords

Coordination failure Subgame perfectness Non-credible threats Laboratory experiments Social preferences Inequality aversion 

JEL Classification

C72 D83 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2014

Authors and Affiliations

  1. 1.Paris School of Economics, Université de Lorraine (BETA)NancyFrance
  2. 2.Department of Economics, Institute for Public Sector EconomicsVienna University of Economics and Business – WU WienViennaAustria

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