Cooperation under Comparison

Abstract

We establish a new approach to the modeling of cooperation, and we formulate a new solution concept for cooperative games. We do this by constructing a game of cooperation between individuals who exhibit distaste for relative deprivation, <em>RD</em>, in the sense that they experience stress when their income is lower than that of their comparators. In such a game, the sharing out of the jointly earned income between these individuals when they cooperate, as prescribed by standard solutions of cooperative games, might not be acceptable to the individuals. The stress from <em>RD</em> may have the upper hand. Measuring stress by <em>RD</em>, we thus model a setting in which two individuals who are concerned with being relatively deprived need to decide whether or not to cooperate. We term this setting an <em>RD cooperative game</em>, and we design a rule, the <em>RD solution</em>, for the distribution of the income yielded in this game. The <em>RD solution</em> prescribes cooperation in spite of cooperation-induced stress and preserves the spirit of standardness (an equal sharing of the gain that accrues from cooperation) for two-player games (a property shared by the main solution concepts for cooperative games).