Social Distance, Reputation, Risk Attitude, Value Orientation and Equity in Economic Exchanges

The objective of this paper is to use the ultimatum game setting in a controlled laboratory environment to provide additional empirical evidence on the puzzling phenomenon of why some economic agents may reject non-trivial offers for distributing the surplus of an economic transaction, while others may accept very trivial amounts. Previous research across disciplines (economics, biology, philosophy, sociology and psychology) has studied this phenomenon. These studies provide numerous explanations of such contradictory behavior, most of which are unobservable and vary across economic agents. Our research design attempts to control for this unobserved heterogeneity across agents by using the dual-role design where the participants simultaneously play the roles of both the sender and recipient with two anonymous partners in a multi-period ultimatum game. This design allows us to develop a fairness index for each participant. The fairness index is then used as an explanatory variable to help understand the agents’ decisions to accept or reject the proposed distribution of resources. We use a multi-period within-subjects design to control for some of the unobserved heterogeneity across subjects. In addition, measure subjects’ risk attitudes and value orientations and explicitly include them in the regression analysis. The results show that the fairness index is a crucial determinant of agents’ decisions to accept or reject the proposed splits. Furthermore, while individuals’ social value orientations are not significant determinants of whether or not an offer is accepted, risk attitudes are important.