The Generosity Effect: Fairness in Sharing Gains and Losses

52 Pages Posted: 10 Sep 2013

See all articles by Guillermo Baquero

Guillermo Baquero

ESMT European School of Management and Technology

Willem Smit

IMD International; Erasmus Research Institute of Management (ERIM)

Luc Wathieu

Georgetown University McDonough School of Business

Date Written: August 29, 2013

Abstract

We explore the interaction between fairness attitudes and reference dependence both theoretically and experimentally. Our theory of fairness behavior under reference-dependent preferences in the context of ultimatum games, defines fairness in the utility domain and not in the domain of dollar payments. We test our model predictions using a within-subject design with ultimatum and dictator games involving gains and losses of varying amounts. Proposers indicated their offer in gain-and (neatly comparable) loss-games; responders indicated minimum acceptable gain and maximum acceptable loss. We find a significant “generosity effect” in the loss domain: on average, proposers bear the largest share of losses as if anticipating responders’ call for a smaller share. In contrast, reference dependence hardly affects the outcome of dictator games -- where responders have no veto right -- though we detect a small but significant “compassion effect”, whereby dictators are on average somewhat more generous sharing losses than sharing gains.

Keywords: fairness, loss domain, ultimatum game, dictator game, reference-dependent preferences, social preferences

JEL Classification: D03, D81

Suggested Citation

Baquero, Guillermo and Smit, Willem and Wathieu, Luc, The Generosity Effect: Fairness in Sharing Gains and Losses (August 29, 2013). ESMT Working Paper No. 13-08. Available at SSRN: https://ssrn.com/abstract=2323551 or http://dx.doi.org/10.2139/ssrn.2323551

Guillermo Baquero (Contact Author)

ESMT European School of Management and Technology ( email )

Schlossplatz 1
10117 Berlin
Germany

Willem Smit

IMD International ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 - 10 - 408.19.18 (Phone)
010 - 408.90.11 (Fax)

HOME PAGE: http://www.informationsharing.org/

Luc Wathieu

Georgetown University McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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