Accepted author manuscript, 3.53 MB, PDF document
Available under license: CC BY: Creative Commons Attribution 4.0 International License
Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
<mark>Journal publication date</mark> | 31/08/2024 |
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<mark>Journal</mark> | Theory and Decision |
Issue number | 1 |
Volume | 97 |
Number of pages | 29 |
Pages (from-to) | 109-137 |
Publication Status | Published |
Early online date | 31/12/23 |
<mark>Original language</mark> | English |
We propose and test a model of loyalty in games. Players can mutually maintain loyalty by working towards a common goal that is pareto-superior to any Nash equilibrium without it. Loyalty imposes a psychological cost on defecting in an ongoing cooperation, which is thus sustained. We distinguish loyalty from reciprocity and explain how it complements guilt aversion with two dynamic games from a field experiment conducted in a Pakistani factory. The evidence supports the validity of loyalty, which has a stronger effect within than between groups.