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Peer-Induced Fairness in Games

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  • Teck-Hua Ho
  • Xuanming Su

Abstract

People exhibit peer-induced fairness concerns when they look to their peers as a reference to evaluate their endowments. We analyze two independent ultimatum games played sequentially by a leader and two followers. With peer-induced fairness, the second follower is averse to receiving less than the first follower. Using laboratory experimental data, we estimate that peer-induced fairness between followers is two times stronger than distributional fairness between leader and follower. Allowing for heterogeneity, we find that 50 percent of subjects are fairness-minded. We discuss how peer-induced fairness might limit price discrimination, account for low variability in CEO compensation, and explain pattern bargaining. (JEL C72, D63 )

Suggested Citation

  • Teck-Hua Ho & Xuanming Su, 2009. "Peer-Induced Fairness in Games," American Economic Review, American Economic Association, vol. 99(5), pages 2022-2049, December.
  • Handle: RePEc:aea:aecrev:v:99:y:2009:i:5:p:2022-49
    Note: DOI: 10.1257/aer.99.5.2022
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    References listed on IDEAS

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    Cited by:

    1. Yang, Jing & Xie, Jinxing & Deng, Xiaoxue & Xiong, Huachun, 2013. "Cooperative advertising in a distribution channel with fairness concerns," European Journal of Operational Research, Elsevier, vol. 227(2), pages 401-407.
    2. Sylvain Béal & Eric Rémila & Philippe Solal, 2012. "Compensations in the Shapley value and the compensation solutions for graph games," International Journal of Game Theory, Springer;Game Theory Society, vol. 41(1), pages 157-178, February.
    3. Simon Gächter & Daniele Nosenzo & Martin Sefton, 2012. "The Impact of Social Comparisons on Reciprocity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1346-1367, December.
    4. Christian Thoeni & Simon Gaechter, 2011. "Peer Effects and Social Preferences in Voluntary Cooperation," Discussion Papers 2011-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    5. Jianning Kong & Peter C.B. Phillips & Donggyu Sul, 2017. "Weak s- Convergence: Theory and Applications," Cowles Foundation Discussion Papers 2072, Cowles Foundation for Research in Economics, Yale University.
    6. repec:eee:joepsy:v:62:y:2017:i:c:p:204-230 is not listed on IDEAS
    7. Xuanming Su, 2010. "Optimal Pricing with Speculators and Strategic Consumers," Management Science, INFORMS, vol. 56(1), pages 25-40, January.
    8. repec:eee:pubeco:v:155:y:2017:i:c:p:11-20 is not listed on IDEAS
    9. Avi Goldfarb & Teck-Hua Ho & Wilfred Amaldoss & Alexander Brown & Yan Chen & Tony Cui & Alberto Galasso & Tanjim Hossain & Ming Hsu & Noah Lim & Mo Xiao & Botao Yang, 2012. "Behavioral models of managerial decision-making," Marketing Letters, Springer, vol. 23(2), pages 405-421, June.
    10. Du, Shaofu & Nie, Tengfei & Chu, Chengbin & Yu, Yugang, 2014. "Reciprocal supply chain with intention," European Journal of Operational Research, Elsevier, vol. 239(2), pages 389-402.
    11. Messinger, Paul R., 2016. "The role of fairness in competitive supply chain relationships: An experimental studyAuthor-Name: Choi, Sungchul," European Journal of Operational Research, Elsevier, vol. 251(3), pages 798-813.
    12. Nie, Tengfei & Du, Shaofu, 2017. "Dual-fairness supply chain with quantity discount contracts," European Journal of Operational Research, Elsevier, vol. 258(2), pages 491-500.
    13. repec:bla:stratm:v:38:y:2017:i:12:p:2333-2352 is not listed on IDEAS
    14. repec:kap:qmktec:v:15:y:2017:i:2:d:10.1007_s11129-017-9181-1 is not listed on IDEAS
    15. Caleb Cox & Matthew Jones & Kevin Pflum & Paul Healy, 2015. "Revealed reputations in the finitely repeated prisoners’ dilemma," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(3), pages 441-484, April.
    16. Ke Wang & Jinwen Sun & Liang Liang & Xiaoyan Li, 2016. "Optimal contracts and the manufacturer’s pricing strategies in a supply chain with an inequity-averse retailer," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 24(1), pages 107-125, March.
    17. Yuxin Chen & Tony Haitao Cui, 2013. "The Benefit of Uniform Price for Branded Variants," Marketing Science, INFORMS, vol. 32(1), pages 36-50, March.
    18. Christoph Graf & Rudolf Vetschera & Yingchao Zhang, 2013. "Parameters of social preference functions: measurement and external validity," Theory and Decision, Springer, vol. 74(3), pages 357-382, March.
    19. Thöni, Christian & Gächter, Simon, 2015. "Peer effects and social preferences in voluntary cooperation: A theoretical and experimental analysis," Journal of Economic Psychology, Elsevier, vol. 48(C), pages 72-88.
    20. Teck-Hua Ho & Sergei Savin & Christian Terwiesch, 2011. "Note: A Reply to "New Product Diffusion Decisions Under Supply Constraints"," Management Science, INFORMS, vol. 57(10), pages 1811-1812, October.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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