A couple of days ago, I wrote a post on fairness, and what the odd history of the word might mean for markets.  The esteemed James Surowiecki, whose book I use in the classes that I teach, wonders whether it really matters that only English has the specific word "fair", given that people around the world make similar decisions in the ultimatum game.  

It's less interesting to me that people nearly universally offer (and accept) more than $1; the benchmark of a game-theoretic automaton is a low standard. The only people I've seen do that for real stakes are graduate students in economics, and they're an odd bunch whose training has somehow disturbingly supplanted the rules of fairness that ordinary people apply. (Something that's worth remembering as you read the Op-Ed back and forth on the banking bailout.)

I think there's a lot more value to be gained in observing how mean offers vary by context.  After translating the instructions and altering the protocols to fit different cultural settings around the world, we observe that mean offers vary from 48% to 26% of the pie.  We may all have a sense of fairness, but our sense of what is fair varies pretty dramatically.

As I mention we can also change the experimental protocols for participants right here in the US and observe nearly the same variance, 44% to 28%. [1]  The interesting question is, how do people come agree on the tacit social rules for a particular context?  An undergraduate was once so struck by the variation of these results that he proposed the following experiment in his final paper.  Is the sense of an earned entitlement so strong among our American undergraduate volunteers, he wondered, that if the high scorers on a quiz unwittingly became the responders and the low scorers the proposers, the proposers might offer more than $5 to the responders?   I think he was on to something.


[1] [Smith, Vernon L. 2008. Rationality in Economics: Constructivist and Ecological Forms.  New York: Cambridge U Press (p. 217).]

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