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Fairness: A Critique to the Utilitarian Approach

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  • Kircher, Philipp
  • Sandroni, Alvaro
  • Ludwig, Sandra

Abstract

We address a basic diffculty with incorporating fairness into standard utilitarian choice theories. Standard utilitarian theories evaluate lotteries according to the (weighted) utility over ?nal outcomes and assume in particular that a lottery is never preferred over getting the most preferred underlying outcome with ertainty. While nearly universally adopted in economics (including behavioral economics) and appealing for choices among consumption goods, this approach is problematic when choices directly affect the payoffs of other individuals. A difficulty is that randomization may in itself be valued as a desirable procedure for allocating scarce resources. We highlight this in two simple choice settings. Individuals can choose between three options: to get more money; to get less money and someo ther good; to flip a coin between these two alternatives. When the good is a regular consumption good like a coffeemug, hardly any of our subjects randomize. When the good is a social good that yields payoffs directly to some other individual,nearly a third of our subjects choose to randomize. Our results indicate that fairness concerns are conducive to behavioral anomalies that the standard utilitarian model cannot accommodate.

Suggested Citation

  • Kircher, Philipp & Sandroni, Alvaro & Ludwig, Sandra, 2009. "Fairness: A Critique to the Utilitarian Approach," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 288, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:288
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    File URL: https://epub.ub.uni-muenchen.de/13266/1/288.pdf
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    References listed on IDEAS

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    Cited by:

    1. Kellner, Christian & Reinstein, David & Riener, Gerhard, 2015. "Stochastic income and conditional generosity," DICE Discussion Papers 197, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    2. repec:bri:cmpowp:13/336 is not listed on IDEAS
    3. repec:esx:essedp:762 is not listed on IDEAS
    4. repec:bri:cmpowp:14/336 is not listed on IDEAS
    5. Christian Keller & David Reinstein & Gerhard Riener & Michael Sanders, 2015. "Giving and Probability," The Centre for Market and Public Organisation 15/336, Department of Economics, University of Bristol, UK.
    6. Fudenberg, Drew & Levine, David K., 2012. "Fairness, risk preferences and independence: Impossibility theorems," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 606-612.
    7. Kota SAITO, 2012. "Social Preferences under Uncertainty: Equality of Opportunity vs. Equality of Outcome," Levine's Working Paper Archive 786969000000000396, David K. Levine.
    8. Englmaier, Florian & Wambach, Achim, 2010. "Optimal incentive contracts under inequity aversion," Games and Economic Behavior, Elsevier, vol. 69(2), pages 312-328, July.
    9. Kota Saito, 2010. "Preference for Randomization - Ambiguity Aversion and Inequality Aversion," Levine's Working Paper Archive 661465000000000094, David K. Levine.

    More about this item

    Keywords

    risky choice; betweenness axiom; social preferences; preference for randomness;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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