Lecture 9: Fairness and Justice

Question 1

types of fairness

Answer 1

• true fairness
• instrumental fairness
• application of fairness rules

Question 2

what is fair

Answer 2

• equality in input (both pay equal)
• proportionality (pay percentage of salary)
• equality in outcome (pool incomes)

Question 3

ranking of allocation models

Answer 3

• auction (argued to be best by economics, but ranked lowest by individuals)
• lottery (moderate)
• queue (ranked as most fair)

Question 4

fairness in ultimatum games

Answer 4

• people have a preference for acting fair
• people have a preference for being treated fairly
• people are willing to incur costs to punish unfair behaviors (altruistic punishment)

Question 5

what makes an economic transaction seem fair

Answer 5

starting point: beer on the beach scenario

Question 6

dual entitlement

Answer 6

transactors have an entitlement to the terms of the reference transaction, and firms are entitled to their reference point (endowment effect for both traders)
- governs community standards of fairness

Question 7

tacit coordination

Answer 7

the ability of individuals to align their decisions or actions without explicit communication, relying instead on shared expectations, common knowledge, or social norms

Question 8

strong versus weak situations

Answer 8

strong situations
- salient cues to guide behavior

weak situations
- no salient cues to guide behavior (importance of dispositions)
- importance of social value orientation

Question 9

true fairness vs instrumental fairness

Answer 9

Question 10

free-rider hypothesis

Answer 10

suggests that people may be less likely to contribute to a collective good or effort when they believe others will contribute, allowing them to “free ride” on the efforts of others without putting in their own resources or effort
- economists might be less likely than others to donate to private charities

Question 11

prisoner dilemma game

Answer 11

showed that economics majors are more likely than non majors to behave self-interestedly

Question 12

self-interest model

Answer 12

tends to inhibit cooperation

Question 13

fair allocation in an ultimatum game

Answer 13

could be explained by the allocator’s fear that the recipient might reject a small positive offer

Question 14

cost-plus rule

Answer 14

a simple pricing method where the price of a product is set by adding a fixed percentage (markup) to its production cost, often seen as a fair and straightforward way to determine price

Question 15

2 general rules that were found to govern fairness judgements

Answer 15

• it is unfair for a firm to exploit an increase in its market power to alter the terms of the reference transaction at the direct expense of a customer, tenant, or employee
• it is acceptable for a firm to maintain its profit at the reference level by raising prices or rents or by cutting wages as necessary