The Impact of Fairness on Decision Making — An Analysis of Different Video Experiments

Abstract

It has been standard in economic theory that agents are modeled as self-centered individuals pursuing their own material interest only. In recent years increasing evidence, however, from economic experiments in particular, suggests that subjects are also motivated by concerns for others. Although fairness has been taken to be a main explanatory variable for certain observed deviations of behavior from game theoretic predictions (cf. Fehr and Schmidt, 2001), fairness is not defined in a consistent way in the economics literature. Fehr and Schmidt (1999) modeling fairness as self-centered inequity aversion assume inequality to be the relevant notion of inequity. Rabin (1993), in turn, employs beliefs about opponents’ intentions in characterizing fairness, extending the notion of fair behavior to include reciprocal fairness (Camerer, forthcoming; Fehr et al. 1996, Fehr etal. 2000). Many authors, on the other hand, fail to specify how fairness is defined. Equality is often implicitly assumed to be the reference point for fairness judgments (cf. the survey by Fehr and Schmidt, 2001). Sometimes, however, determining a reference point is regarded as more complicated, and authors ask their experimental subjects to state their perception of fairness (e.g. Gächter and Riedl, 2001; Babcock at al., 1995; Kahneman et al., 1986 a, Kahneman et al., 1986 b; Yaari and Bar-Hillel, 1984).

I thank Thorsten Chmura, Markus Graf, Stefan Graubner for their assistance in evaluating the transcripts, Simon Gächter as well as participants of the 25^th IAREP/SABE Annual Meeting on Fairness and Cooperation in Baden/Vienna, the 20^th Arne Ryde Symposium on Experimental Economics, Lund, Sweden, and the Annual Meeting of the German Association for Experimental Economics (GEW) for helpful comments and suggestions. I am indebted to an anonymous referee and the editors of this volume for their valuable advice. Any remaining errors are, of course, my own. Financial support by Deutsche Forschungsgemeinschaft, Sonderforschungsbereich 303, and the European Union, TMR-research-network ENDEAR (FMRX-CT98-0238) is gratefully acknowledged.