Philippe Gregoire (Université Laval) has posted Surprise and Gift Exchange on SSRN. Here is the abstract:
- We consider a wage-effort game where the agent's reciprocal behavior depends on the surprise generated by the wage paid by the principal. The agent works more when the wage is greater than expected and works less when the wage is smaller than expected. This is done by incorporating the agent's beliefs into his utility function, implying that players are involved in a psychological game (Geanakoplos, Pearce and Stacchetti, 1989). Beliefs have to be consistent in equilibrium, forcing the principal to randomize in order to surprise the agent. This consistency condition results in the principal being worse off trying to manipulate the agent than paying the minimum wage with certainty.
