Honest Equilibria in Reputation Games: The Role of Time Preferences

New relationships are often plagued with uncertainty because one of the players has some private information about her “type.” The reputation literature has shown that equilibria that reveal this private information typically involve breach of trust and conflict. But are these inevitable for equilibrium learning? I analyze self-enforcing relationships where one party is privately informed about her time preferences. I show that there always exist honest reputation equilibria, which fully reveal information and support cooperation without breach or conflict. I compare these to dishonest reputation equilibria from several perspectives. My results are applicable to a broad class of repeated games. (JEL C73, D82, D83, D86, Z13)

On potential links between inequity aversion and the structure of interactions for the evolution of cooperation

Despite the fact that most models of cooperation assume equal outcomes between individuals, in real life it is likely rare that this is the case. Does it make a difference for our understanding of the evolution of cooperation? Following a taxonomy of cooperation concepts that focuses on costs and benefits, we explore this question by considering the degree to which inequity aversion may provide one mechanism to stabilize cooperation. We suggest a key role for inequity aversion in some contexts in both biological markets and direct reciprocity, and highlight the potentially unique role of positive inequity aversion for human reputation games. Nevertheless, a key challenge is to determine how different animal species perceive the payoff structure of their interactions, how they see their interaction with their partners, and the degree to which simpler mechanisms, like contrast effects or the associative learning seen in optimal foraging, may produce similar outcomes.