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.
Bolle, Friedel, Jonathan H. W. Tan, and Daniel John Zizzo.
American Economic Journal: Microeconomics,
Conflict; Conflict Resolution; Alliances