The generosity effect: Fairness in sharing gains and losses
AbstractWe explore the interaction between fairness attitudes and reference dependence both theoretically and experimentally. Our theory of fairness behavior under reference-dependent preferences in the context of ultimatum games, defines fairness in the utility domain and not in the domain of dollar payments. We test our model predictions using a within-subject design with ultimatum and dictator games involving gains and losses of varying amounts. Proposers indicated their offer in gain- and (neatly comparable) loss- games; responders indicated minimum acceptable gain and maximum acceptable loss. We find a significant “generosity effect” in the loss domain: on average, proposers bear the largest share of losses as if anticipating responders’ call for a smaller share. In contrast, reference dependence hardly affects the outcome of dictator games -where responders have no veto right- though we detect a small but significant “compassion effect”, whereby dictators are on average somewhat more generous sharing losses than sharing gains.
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Bibliographic InfoPaper provided by ESMT European School of Management and Technology in its series ESMT Research Working Papers with number ESMT-13-08.
Length: 47 pages
Date of creation: 29 Aug 2013
Date of revision:
Fairness; loss domain; ultimatum game; dictator game; referencedependent preferences; social preferences;
Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-26 (All new papers)
- NEP-CBE-2013-09-26 (Cognitive & Behavioural Economics)
- NEP-EVO-2013-09-26 (Evolutionary Economics)
- NEP-EXP-2013-09-26 (Experimental Economics)
- NEP-GTH-2013-09-26 (Game Theory)
- NEP-HPE-2013-09-26 (History & Philosophy of Economics)
- NEP-UPT-2013-09-26 (Utility Models & Prospect Theory)
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