American Economic Journal: Microeconomics (Forthcoming)
44 Pages Posted: 13 Apr 2013
Date Written: April 11, 2013
Vendettas occur in many real world settings where rivals compete for a prize, e.g., winning a competitive promotion or retaining a job, by engaging in aggressive retaliatory behavior. We present a benchmark experiment where two players have an initial probability of winning a prize. Retaliatory vendettas occur and lead subjects to the worst possible outcomes in 2/3 of cases, counter to self-interest predictions, with large inefficiencies even in the absence of any immediate gain from aggression. Negative emotions are important and interact with the economic setting to produce large social inefficiencies. Allowing cooling off periods reduces aggression.
Keywords: conflict, vendetta, spite, anger, emotions, cooling off
JEL Classification: C72, C91, D03
Suggested Citation: Suggested Citation