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What Price Fairness? A Bargaining Study

  • Rami Zwick

    (The Hong Kong University of Science and Technology)

  • Xiao-Ping Chen

    (Indiana University)

Our study concerns bargaining behavior in situations where one party is in a stronger position than the other. We investigate both the tradeoff the favored party makes between pursuing his strategic advantage and giving weight to other players' concern for fairness, and the tradeoff the disadvantaged player makes between pursuing a fair outcome from a disadvantaged position and the cost of that pursuit. In particular, we hypothesize that the degree to which strategically strong players attempt to exploit their strategic advantage depends on their potential costs for doing so. Similarly, the degree to which weak players persist in seeking "fairness" is also a function of how much it (potentially) costs them to do so. Students negotiated in pairs over the division of $HK50 using a finite horizon, fixed-cost (per rejection) alternating offer rule. Each pair consisted of a high-cost and a low-cost bargainer. In accordance with the hypothesis, the willingness of the high-cost bargainers to demand fairness and to persist in their demands was a function of how much it cost them to do so, and the degree to which the low-cost bargainers attempted to exploit their strategic advantage depended on their own cost of rejection. We conclude that "fairness" has a price such that the higher its price, the lower the "demand" for it. This suggests that demands for fairness are subject to cost- benefit evaluation, are in this sense deliberate, and are well thought out.

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File URL: http://econwpa.repec.org/eps/exp/papers/9902/9902002.pdf
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Paper provided by EconWPA in its series Experimental with number 9902002.

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Length: 34 pages
Date of creation: 23 Feb 1999
Date of revision:
Handle: RePEc:wpa:wuwpex:9902002
Note: Type of Document - Acrobat PDF; prepared on PC; pages: 34 ; figures: included. Management Science (in press)
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Weg, Eythan & Zwick, Rami, 1994. "Toward the settlement of the fairness issues in ultimatum games : A bargaining approach," Journal of Economic Behavior & Organization, Elsevier, vol. 24(1), pages 19-34, June.
  2. G. Bolton, 2010. "A comparative model of bargaining: theory and evidence," Levine's Working Paper Archive 263, David K. Levine.
  3. Frey, Bruno S. & Pommerehne, Werner W., 1993. "On the fairness of pricing -- An empirical survey among the general population," Journal of Economic Behavior & Organization, Elsevier, vol. 20(3), pages 295-307, April.
  4. Roth, Alvin E. & Vesna Prasnikar & Masahiro Okuno-Fujiwara & Shmuel Zamir, 1991. "Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study," American Economic Review, American Economic Association, vol. 81(5), pages 1068-95, December.
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  6. Robert Slonim & Alvin E. Roth, 1998. "Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic," Econometrica, Econometric Society, vol. 66(3), pages 569-596, May.
  7. Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
  8. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
  9. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  10. Ochs, Jack & Roth, Alvin E, 1989. "An Experimental Study of Sequential Bargaining," American Economic Review, American Economic Association, vol. 79(3), pages 355-84, June.
  11. Binmore, Ken G & Shaked, Avner & Sutton, John, 1988. "A Further Test of Noncooperative Bargaining Theory: Reply," American Economic Review, American Economic Association, vol. 78(4), pages 837-39, September.
  12. Lisa Cameron, 1995. "Raising the Stakes in the Ultimatum Game: Experimental Evidence From Indonesia," Working Papers 724, Princeton University, Department of Economics, Industrial Relations Section..
  13. Bolton Gary E. & Zwick Rami, 1995. "Anonymity versus Punishment in Ultimatum Bargaining," Games and Economic Behavior, Elsevier, vol. 10(1), pages 95-121, July.
  14. Fehr, Ernst & Kirchsteiger, Georg & Riedl, Arno, 1998. "Gift exchange and reciprocity in competitive experimental markets," European Economic Review, Elsevier, vol. 42(1), pages 1-34, January.
  15. Corfman, Kim P & Lehmann, Donald R, 1993. " The Importance of Others' Welfare in Evaluating Bargaining Outcomes," Journal of Consumer Research, University of Chicago Press, vol. 20(1), pages 124-37, June.
  16. Neelin, Janet & Sonnenschein, Hugo & Spiegel, Matthew, 1988. "A Further Test of Noncooperative Bargaining Theory: Comment," American Economic Review, American Economic Association, vol. 78(4), pages 824-36, September.
  17. Eckel, Catherine C. & Grossman, Philip J., 1996. "The relative price of fairness: gender differences in a punishment game," Journal of Economic Behavior & Organization, Elsevier, vol. 30(2), pages 143-158, August.
  18. Weg, Eythan & Zwick, Rami & Rapoport, Amnon, 1996. "Bargaining in Uncertain Environments: A Systematic Distortion of Perfect Equilibrium Demands," Games and Economic Behavior, Elsevier, vol. 14(2), pages 260-286, June.
  19. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  20. Gary E. Bolton & Rami Zwick & Elena Katok, 1998. "Dictator game giving: Rules of fairness versus acts of kindness," International Journal of Game Theory, Springer, vol. 27(2), pages 269-299.
  21. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  22. Pillutla, Madan M. & Murnighan, J. Keith, 1996. "Unfairness, Anger, and Spite: Emotional Rejections of Ultimatum Offers," Organizational Behavior and Human Decision Processes, Elsevier, vol. 68(3), pages 208-224, December.
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  26. repec:att:wimass:9601 is not listed on IDEAS
  27. Tompkinson, Paul & Bethwaite, Judy, 1995. "The ultimatum game: raising the stakes," Journal of Economic Behavior & Organization, Elsevier, vol. 27(3), pages 439-451, August.
  28. James Andreoni & John H Miller, 1997. "Giving according to GARP: an experimental study of rationality and altruism," Levine's Working Paper Archive 672, David K. Levine.
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  33. Hoffman, Elizabeth & McCabe, Kevin A & Smith, Vernon L, 1996. "On Expectations and the Monetary Stakes in Ultimatum Games," International Journal of Game Theory, Springer, vol. 25(3), pages 289-301.
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