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Fairness vs. Social Welfare in Experimental Decisions

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  • Stefan Kohler

Abstract

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.

Suggested Citation

  • Stefan Kohler, 2005. "Fairness vs. Social Welfare in Experimental Decisions," Economics Working Papers ECO2005/11, European University Institute.
    • Handle: RePEc:eui:euiwps:eco2005/11
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    Cited by:

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    2. 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.
    3. Stefan Kohler & Karl H. Schlag, 2019. "Inequality Aversion Causes Equal Or Unequal Division In Alternating‐Offer Bargaining," Bulletin of Economic Research, Wiley Blackwell, vol. 71(1), pages 47-57, January.
    4. Xu, Lei & Li, Dahui & Chiu, Chun-Hung & Zhang, Qing & Gao, Runpeng, 2022. "Implications of warm-glow effect and risk aversion in reward-based crowdfunding," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 160(C).
    5. Ying Tang & Andrea Moro & Sandro Sozzo & Zhiyong Li, 2018. "Modelling trust evolution within small business lending relationships," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-18, December.
    6. Zhaoyu Cao & Yucheng Zou & Xu Zhao & Kairong Hong & Yanwei Zhang, 2021. "Multidimensional Fairness Equilibrium Evaluation of Urban Housing Expropriation Compensation Based on VIKOR," Mathematics, MDPI, vol. 9(4), pages 1-26, February.
    7. Stefan Kohler, 2014. "Guilt causes equal or unequal division in alternating-offer bargaining," Economics Bulletin, AccessEcon, vol. 34(3), pages 1611-1617.
    8. Stefan Kohler, 2012. "Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining," Games, MDPI, vol. 3(3), pages 1-19, September.
    9. Zhaoyu Cao & Xu Zhao & Yucheng Zou & Kairong Hong & Yanwei Zhang, 2021. "Multidimensional Fair Fuzzy Equilibrium Evaluation of Housing Expropriation Compensation from the Perspective of Behavioral Preference: A Case Study from China," Mathematics, MDPI, vol. 9(6), pages 1-22, March.
    10. Stefan Kohler & European University Institute, 2006. "Inequality Aversion and Stochastic Decision-making: Experimental Evidence from Zimbabwean Villages after Land Reform," Economics Series Working Papers GPRG-WPS-061, University of Oxford, Department of Economics.
    11. Pelligra, Vittorio & Stanca, Luca, 2013. "To give or not to give? Equity, efficiency and altruistic behavior in an artefactual field experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 46(C), pages 1-9.
    12. 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.
    13. Yuyan Wang & Zhaoqing Yu & Liang Shen & Wenquan Dong, 2021. "E-Commerce Supply Chain Models under Altruistic Preference," Mathematics, MDPI, vol. 9(6), pages 1-19, March.
    14. Sanjay Jain & Kun Qian, 2021. "Compensating Online Content Producers: A Theoretical Analysis," Management Science, INFORMS, vol. 67(11), pages 7075-7090, November.
    15. Aurélie Bonein, 2006. "An empirical study of determinants in decision-making process," Working Papers 06-10, LAMETA, Universtiy of Montpellier, revised Oct 2006.
    16. Julian Friedland & Kyle Emich & Benjamin M Cole, 2020. "Uncovering the moral heuristics of altruism: A philosophical scale," PLOS ONE, Public Library of Science, vol. 15(3), pages 1-26, March.
    17. Kurt A. Ackermann & Ryan O. Murphy, 2019. "Explaining Cooperative Behavior in Public Goods Games: How Preferences and Beliefs Affect Contribution Levels," Games, MDPI, vol. 10(1), pages 1-34, March.
    18. Kohler, Stefan, 2012. "Envy can promote more equal division in alternating-offer bargaining," MPRA Paper 40761, University Library of Munich, Germany.
    19. Breitmoser, Yves & Tan, Jonathan H.W., 2011. "Ultimata bargaining: generosity without social motives," MPRA Paper 33613, University Library of Munich, Germany.

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    More about this item

    Keywords

    Social Preferences; Inequality Aversion; Welfare Concern; Reciprocity;
    All these keywords.

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • B49 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Other
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers

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