Peer-Induced Fairness in Games

41 Pages Posted: 6 Jul 2008 Last revised: 8 May 2012

See all articles by Teck Ho

Teck Ho

University of California, Berkeley - Haas School of Business

Xuanming Su

University of Pennsylvania - Operations & Information Management Department

Date Written: October 2008

Abstract

People exhibit peer-induced fairness concerns when they look to their peers as a reference to evaluate their endowments. We analyze two independent ultimatum games played sequentially by a leader and two followers. With peer-induced fairness, the second follower is averse to receiving less than the first follower. Using laboratory experimental data, we estimate that peer-induced fairness between followers is 2 times stronger than distributional fairness between the leader and each follower. Allowing for heterogeneity, we find that 50% of subjects are fairness-minded. We discuss how peer-induced fairness might limit price discrimination, account for low variability in CEO compensation, and explain pattern bargaining.

Keywords: social comparison, peer-induced fairness, distributional fairness, behavioral economics, experimental economics

JEL Classification: A12, A13, C72, D63

Suggested Citation

Ho, Teck and Su, Xuanming, Peer-Induced Fairness in Games (October 2008). Available at SSRN: https://ssrn.com/abstract=1155255 or http://dx.doi.org/10.2139/ssrn.1155255

Teck Ho

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Xuanming Su (Contact Author)

University of Pennsylvania - Operations & Information Management Department ( email )

Philadelphia, PA 19104
United States

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