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Fairness vs. Social Welfare in Experimental Decisions

  • Stefan Kohler

Experimental evidence from modified dictator games and simple choice situations indicates that concern for overall welfare is an important motive in human decision making. Models of inequality averse agents, as suggested by Fehr and Schmidt (1999) or Bolton and Ockenfels (2000), fall short in explaining behavior of proposers, who reduce their payoff below a fair split of the endowment to maximize social welfare, while other types of social preferences do well on these data. This has created the impression that inequality aversion is a misguided concept. This paper presents a formal model and shows that a combination of welfare concern and inequality aversion changes this result in favor of inequality aversion. It also establishes a unique link between altruism and social welfare in the proposed model.

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Paper provided by European University Institute in its series Economics Working Papers with number ECO2005/11.

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Date of creation: 2005
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Handle: RePEc:eui:euiwps:eco2005/11
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  2. Engelmann Dirk & Strobel Martin, 2002. "Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments," Research Memorandum 015, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  3. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
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  17. John A. List, 2007. "On the Interpretation of Giving in Dictator Games," Journal of Political Economy, University of Chicago Press, vol. 115, pages 482-493.
  18. 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.
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