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The generosity effect: Fairness in sharing gains and losses

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Author Info

  • Guillermo Baquero

    (ESMT European School of Management and Technology)

  • Willem Smit

    (SMU, IMD)

  • Luc Wathieu

    (Georgetown University, McDonough School of Business)

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    Abstract

    We 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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    File URL: http://static.esmt.org/publications/workingpapers/ESMT-13-08.pdf
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    Bibliographic Info

    Paper provided by ESMT European School of Management and Technology in its series ESMT Research Working Papers with number ESMT-13-08.

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    Length: 47 pages
    Date of creation: 29 Aug 2013
    Date of revision:
    Handle: RePEc:esm:wpaper:esmt-13-08

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    Related research

    Keywords: Fairness; loss domain; ultimatum game; dictator game; referencedependent preferences; social preferences;

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    1. Guth, Werner & Tietz, Reinhard, 1990. "Ultimatum bargaining behavior : A survey and comparison of experimental results," Journal of Economic Psychology, Elsevier, Elsevier, vol. 11(3), pages 417-449, September.
    2. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
    3. Steffen Andersen & Seda Ertac & Uri Gneezy & Moshe Hoffman & John A. List, 2011. "Stakes Matter in Ultimatum Games," American Economic Review, American Economic Association, American Economic Association, vol. 101(7), pages 3427-39, December.
    4. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(4), pages 1039-61, November.
    5. Brit Grosskopf, 2003. "Reinforcement and Directional Learning in the Ultimatum Game with Responder Competition," Experimental Economics, Springer, Springer, vol. 6(2), pages 141-158, October.
    6. Hessel Oosterbeek & Randolph Sloof & Gijs van de Kuilen, 2004. "Cultural differences in ultimatum game experiments: Evidence from a meta-analysis," Experimental, EconWPA 0401003, EconWPA.
    7. John Kagel & Katherine Wolfe, 2001. "Tests of Fairness Models Based on Equity Considerations in a Three-Person Ultimatum Game," Experimental Economics, Springer, Springer, vol. 4(3), pages 203-219, December.
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