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Fairness, errors and the power of competition


Fischbacher, Urs; Fong, C M; Fehr, Ernst (2009). Fairness, errors and the power of competition. Journal of Economic Behavior & Organization, 72(1):527-545.

Abstract

In this paper, we investigate the effects of competition on bargained outcomes. We show that the neglect of either fairness concerns or decision errors will prevent a satisfactory understanding of how competition affects bargaining. We conducted experiments which demonstrate that introducing a small amount of competition to a bilateral ultimatum game – by adding just one competitor – induces large behavioral changes among responders and proposers,
causing large changes in accepted offers. Models that assume that all people are self-interested and fully rational do not adequately explain these changes. We show that a model which combines heterogeneous fairness concerns with decision errors correctly predicts the comparative
static effects of changes in competition. Moreover, the combined model is remarkably good at predicting the entire distribution of offers in many different competitive situations.

Abstract

In this paper, we investigate the effects of competition on bargained outcomes. We show that the neglect of either fairness concerns or decision errors will prevent a satisfactory understanding of how competition affects bargaining. We conducted experiments which demonstrate that introducing a small amount of competition to a bilateral ultimatum game – by adding just one competitor – induces large behavioral changes among responders and proposers,
causing large changes in accepted offers. Models that assume that all people are self-interested and fully rational do not adequately explain these changes. We show that a model which combines heterogeneous fairness concerns with decision errors correctly predicts the comparative
static effects of changes in competition. Moreover, the combined model is remarkably good at predicting the entire distribution of offers in many different competitive situations.

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29 citations in Web of Science®
32 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2009
Deposited On:27 Jan 2011 13:47
Last Modified:26 Jan 2017 08:48
Publisher:Elsevier
ISSN:0167-2681
Publisher DOI:https://doi.org/10.1016/j.jebo.2009.05.021

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