A representation theorem for guilt aversion

Abstract

Guilt aversion has been shown to play an important role in economic decision-making. In this paper, we take an axiomatic approach to guilt by deducing a utility representation from a list of easily interpretable assumptions on an agent's preferences. It turns out that our logarithmic representation can mitigate the problem of multiplicity of equilibria to which psychological games are prone. We apply the model in three well-known games and show that its predictions are consistent with experimental observations.

The Making-Of: Innovation. Understanding and Designing the Environment for Non-R&D Innovation

“…That is because group identity introduces new social conflicts. For instance, group identity impacts inequity aversion (Fehr and Schmidt 1999) among team members, leading to less envy under comparatively lower payoffs Kim and Glomb 2014) and more guilt under comparatively higher payoffs (Jensen and Kozlovskaya 2016;Morell 2019). This changes the requirements for an effective monetary contest scheme, as social preferences become increasingly pivotal.…”