New Research on Norms about Fairness

The Economist recently covered a new study by Nicola Raihani and Katherine McAuliffe. They extend the body of experimental work on ultimatum games and raise interesting questions regarding social norms about fairness.

In the classic ultimatum game, a proposer receives a sum of money and decides how to divide it up between herself and a responder. The responder can either accept the proposed split or turn it down. If the responder refuses the proposal, neither player receives any money. Traditional economics models, which do not account for social norms about fairness, suggest that responders will accept any non-zero offer as even a small amount makes them better off. Yet results repeatedly suggest that responders are willing to incur the cost of forgone payment to punish proposals they perceive to be unfair. Raihani and McAuliffe attempted to shed additional light on what constitutes unfair behavior.

To do so they designed a different game, one in which the first player receives either 10 cents, 30 cents, or 70 cents. The second player always received 70 cents. In Round 1, the first player is given a choice about whether to take 20 cents from the second player. If she decides to take 20 cents from Player 2, Player 1 will end up in one of three possible scenarios, depending on her initial endowment:

1. Player 1 receives 10 cents, takes 20 cents, ends up with 30 cents.
2. Player 1 receives 30 cents, takes 20 cents, ends up with 50 cents.
3. Player 1 receives 70 cents, takes 20 cents, ends up with 90 cents.

In each of these scenarios, Player 2 is left with 50 cents. In other words, despite the loss of 20 cents, Player 2 remains better off than Player 1 in the first scenario. In the second scenario they end up with 50 cents each and in the third Player 2 comes out behind, left with only 50 cents compared to the 90 cents of Player 1. In Round 2, Player 2 has the option of paying 10 cents to impose a loss of 30 cents on Player 1, regardless of whether Player 1 chose to take money from Player 2.

One interesting follow-up might be to play the game with people from different societies, as other researchers have done with various versions of the ultimatum game. Existing research suggests that social norms about fairness vary considerably across different social groups. For example, compared to people in somewhat isolated smaller-scale societies, people in larger-scale societies—where anonymous interactions are fairly commonplace—tend to show heightened concern with fairness and a greater willingness to punish the unfair behavior of strangers.