American Economic Review: Vol. 99 No. 5 (December 2009)


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Peer-Induced Fairness in Games

Article Citation

Ho, Teck-Hua, and Xuanming Su. 2009. "Peer-Induced Fairness in Games." American Economic Review, 99(5): 2022-49.

DOI: 10.1257/aer.99.5.2022


People exhibit peer-induced fairness concerns when they look to their peers as a reference to evaluate their endowments. We analyze two independent ultimatum games played sequentially by a leader and two followers. With peer-induced fairness, the second follower is averse to receiving less than the first follower. Using laboratory experimental data, we estimate that peer-induced fairness between followers is two times stronger than distributional fairness between leader and follower. Allowing for heterogeneity, we find that 50 percent of subjects are fairness-minded. We discuss how peer-induced fairness might limit price discrimination, account for low variability in CEO compensation, and explain pattern bargaining. (JEL C72, D63 )

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Ho, Teck-Hua (U CA, Berkeley)
Su, Xuanming (U CA, Berkeley)

JEL Classifications

C72: Noncooperative Games
D63: Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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