Losing Face

Abstract

When Al makes an offer to Betty that Betty observes and rejects, Al may suffer a painful and costly “loss of face” (LoF). LoF can be avoided by letting the vulnerable side move second, or by setting up “Conditionally Anonymous Environments” that only reveal when both parties say yes. This can impact bilateral matching problems, e.g., marriage markets, research partnering, and international negotiations. We model this assuming asymmetric information, continuous signals of individuals’ binary types, linear marriage production functions, and a primitive LoF term component to utility. LoF makes rejecting one’s match strictly preferred to being rejected, making the “high types always reject” equilibrium stable. LoF may have non-monotonic effects on stable interior equilibria. A small LoF makes high types more selective, making marriage less common and more assortative. A greater LoF (for males only) makes low-type-males reverse snobs, which makes high-females less choosy, with ambiguous effects on the marriage rate.