T03a Ho and Su (2009): Peer-induced Fairness in Games Flashcards
1
Q
What is the modified ultimatum game?
Ho and Su (2009): Peer-induced Fairness in Games
A
- Ultimatum game: Proposer receives $1 and offers Respondent a share. Responder either accepts or the offer or rejects and both get 0 payoff.
- 3 players (Proposer, Respondent 1, Respondent2)
- ultimatum game: P and R1
- -> R2 and P receive noisy signal about proposal in game 1
- ultimatum game: P and R2
2
Q
What do 3 different theories predict for the outcome of the modified ultimatum game?
Ho and Su (2009): Peer-induced Fairness in Games
A
- Orthodox model:
- acceptance rate of R2 is not influenced by the signal
- R1 and R2 accept every proposal >0
- P proposes $0.01
- Distributional fairness:
- R1 and R2 reject low offers
- Peer-induced fairness:
- R2 rejects offers that are below the offer in 1st game
3
Q
4 Results of modified ultimatum game
Ho and Su (2009): Peer-induced Fairness in Games
A
- 50% are self-interested
- R2 rejects more frequently when behind offer from 1st game
- Peer-induced fairness is twice as large as distributional fairness
- P is strategic and aligns 2nd offer with the signal
4
Q
Robustness Check
Ho and Su (2009): Peer-induced Fairness in Games
A
- Setup changed: Proposals are now done by a random device
- Result: Decision of R2 is independent of first offer
- => No peer-induced fairness concerns
5
Q
3 Implications from the paper
Ho and Su (2009): Peer-induced Fairness in Games
A
1. Price discrimination over markets is smaller when there is peer-induced fairness
- CEO remuneration packages are high because of the need to avoid discomforting social comparisons
-
Union negotiation:
- negotiate sequentially with firms
- choose order in which to negotiate
- agreement with 1st firm is reference point
=> Peer-induced fairness suggests that an agreement in labor contract negotiation is not feasible in the first place
