Lecture 10: Fairness Flashcards
different types of fairness
- true fairness
- instrumental fairness
- application of fairness rule
3 different rules of fairness
- equality in input: both pay 12.5K
- proportionality: 6,45 and 18,75K
- Equality in outcome: one pays all and gives the other some, putting all the money together (gemeenschap van goederen).
we cannot clearly experimentally examine this, so as a result we don’t know which option makes people happier.
people’s intuitions about fairness
these differ from economic theory.
when people were asked to rate on fairness they ordered them (most fair to least)
- qeue
- lottery
- auction
but economic theory says the exact opposite
altruistic punishment game
people prefer to split 10 euro’s with the person who was honest in the first round of the game.
- people have a preference for acting fair
- people have a preference for being treated fairly
- and they are willing to incur costs to punish unfair behavior
incorporating fairness in the rational model
the rational model and has many anomalies so we should only add fairness if we know what the effects are and how extreme it is
when do people get angry about fairness
same authors from study about altruistic punishment game asked people via a phone poll their opinion about a raising snow shuffel prices when people were snowed in.
- most people didn’t think it was fair
- but economic students understood
fairness principles
- reference transaction
- dual entitlement
- outcome coding
- exploiting market power
reference transaction
people have this and therefore the evaluation of transaction can be summarized by the principal of dual entitlement.
dual entitlement
- you expect to pay a certain amount (reference amount)
- firms are entitled to profit; they can raise the price if the costs go up, but not if demand goes up.
outcome coding
people respond differently to gains and losses. How the question is formulated.
exploiting market power
when companies raise their prices when demands go up.
instrumental fairness
abusing fairness
people care about being seen as fair.
dictator game study, but gave people the option to keep 9 euro instead of allocating 10 euro’s and the reciever would not be told.
people want to appear fair, but if they can get away with not being fair they still give themselves the better option.
“abusing fairness”
Thomas Schelling
gave insights about when to apply what rule.
used tacit coordination
equity or equality
tacit coordination
people seem to do the same thing when they can’t communicate with each other.
Van Dijk and colleagues’ use of tacit coordination
- everybody pays to get a public good and everyone should to invest to get enough
- resource dilemma; common pool and anyone can take something out
