Nonparametric utility theory in strategic settings: Revealing preferences and beliefs from proposal–response games

Abstract

We explore the conditions under which behavior in a strategic setting can be rationalized as the best response to some belief about other players’ behavior. We show that a restriction on preferences, which we term quasi-monotonicity, provides such a test for a family of ultimatum games. Preferences are quasi-monotone if an agent prefers an allocation that improves her payoff at least as much as that of others. In an experiment, we find that 94% of the proposers make choices that are arbitrarily close to quasi-monotone preferences and beliefs. We also find that 90% of the responders make inconsistent choices in no more than 5% of the decision problems. Subjects whose choices are consistent as..