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Playing Fair: Rationality and Norm-guided Behavior in Games

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Abstract

There is robust experimental evidence that in the ultimatum game real players often prefer a fair allocation which seems to be in contrast to rational decision making. In this paper rational maximizing behavior as well as norm-guided fair behavior are two possible behavioral rules. It is argued that behavioral rules are adopted according to their expected success before the ultimatum game is played. Using the concept of behavioral equilibrium profiles it is shown that conditional to the information status the players may adopt the fair behavioral rule instead of maximizing. Furthermore, conditions are derived where maximizing and fair behavior are both parts of a behavioral equilibrium profile. Also the relation to the indirect evolutionary approach is discussed.

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Paper provided by Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät in its series Working Paper Series B with number 2002-02.

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Date of creation: 28 Aug 2002
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Handle: RePEc:jen:jenavo:2002-02

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Keywords: Rationality; fairness; ultimatum game; behavioral equilibrium;

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  1. M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
  2. Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211.
  3. Guth, Werner, 1995. "On ultimatum bargaining experiments -- A personal review," Journal of Economic Behavior & Organization, Elsevier, vol. 27(3), pages 329-344, August.
  4. Falk, Armin & Fischbacher, Urs, 2006. "A theory of reciprocity," Games and Economic Behavior, Elsevier, vol. 54(2), pages 293-315, February.
  5. Forsythe Robert & Horowitz Joel L. & Savin N. E. & Sefton Martin, 1994. "Fairness in Simple Bargaining Experiments," Games and Economic Behavior, Elsevier, vol. 6(3), pages 347-369, May.
  6. Werner Güth & Kerstin Pull, 2002. "Will Equity Evolve? - An Indirect Evolutionary Approach," Papers on Strategic Interaction 2002-22, Max Planck Institute of Economics, Strategic Interaction Group.
  7. Lipman, Barton L, 1991. "How to Decide How to Decide How to. . . : Modeling Limited Rationality," Econometrica, Econometric Society, vol. 59(4), pages 1105-25, July.
  8. Colin F. Camerer & Richard H. Thaler, 1995. "Anomalies: Ultimatums, Dictators and Manners," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 209-219, Spring.
  9. Becker, Gary S, 1976. "Altruism, Egoism, and Genetic Fitness: Economics and Sociobiology," Journal of Economic Literature, American Economic Association, vol. 14(3), pages 817-26, September.
  10. Markus Pasche, 2001. "Equilibrium Concepts for Boundedly Rational Behavior in Games," Working Paper Series B 2001-03, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät.
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