Loss Aversion in Asymmetric Anti-Coordination Games

Abstract

This paper studies theoretically and experimentally how the possibility of a negative payoff to one player in 2-by-2 hawk-dove games affects the strategic behav- ior of both players. Exposing column players to a possibility of negative payoff allows us to examine if row players can anticipate the column players’ loss aversion. A level-k model with loss averse agents predicts treatment effects across two versions of hawk-dove games with and without losses. Our data support a direct effect of loss aversion and fail to support the anticipation of loss aversion. Specifi- cally, the column players in the treatment group are more likely to play Dove when they face losses; while, only few untreated participants acting as row players seem to anticipate such increased propensity of choosing Dove by their opponents. Further, a time effect is documented and found to be explained by increases in participants’ depths of strategic reasoning over time.

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