Tit for tat: Foundations of preferences for reciprocity in strategic settings

This paper assumes that in addition to the conventional (sel sh) preferences over outcomes, players in a strategic environment have preferences over strategies. In the context of two-player games, it provides conditions under which a player's preferences over strategies can be represented as a weighted average of the individual's sel sh payo s and the sel sh payo s of the opponent. The weight one player places on the opponent's sel sh utility depends on the opponent's behavior. In this way, the framework is rich enough to describe the behavior of individuals who repay kindness with kindness and meanness with meanness. The paper assumes that each player has an ordering over his opponent's strategies that describes the niceness of these strategies. It introduces a condition that insures that the weight on opponent's utility increases if and only if the opponent chooses a nicer strategy. We are grateful to Miguel Costa-Gomes, Jurgen Eichberger, David Levine, Joe Ostroy, Ariel Rubinstein, Dan Vincent, and Bill Zame for their comments. We thank SSHRCC and NSF for nancial support. Department of Economics, University of Western Ontario, London N6A 5C2, Canada. E-mail: [email protected] Department of Economics, University of California, San Diego, La Jolla, CA 92093, U.S.A. E-mail: [email protected]