The generosity effect: Fairness in sharing gains and losses

Guillermo Baquero, Willem Smit and Luc Wathieu
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Guillermo Baquero: ESMT European School of Management and Technology
Willem Smit: SMU, IMD
Luc Wathieu: Georgetown University, McDonough School of Business

No ESMT-13-08, ESMT Research Working Papers from ESMT European School of Management and Technology

Abstract: We explore the interaction between fairness attitudes and reference dependence both theoretically and experimentally. Our theory of fairness behavior under reference-dependent preferences in the context of ultimatum games, defines fairness in the utility domain and not in the domain of dollar payments. We test our model predictions using a within-subject design with ultimatum and dictator games involving gains and losses of varying amounts. Proposers indicated their offer in gain- and (neatly comparable) loss- games; responders indicated minimum acceptable gain and maximum acceptable loss. We find a significant “generosity effect” in the loss domain: on average, proposers bear the largest share of losses as if anticipating responders’ call for a smaller share. In contrast, reference dependence hardly affects the outcome of dictator games -where responders have no veto right- though we detect a small but significant “compassion effect”, whereby dictators are on average somewhat more generous sharing losses than sharing gains.

Keywords: Fairness; loss domain; ultimatum game; dictator game; referencedependent preferences; social preferences (search for similar items in EconPapers)
JEL-codes: D03 D81 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2013-08-29
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp, nep-gth, nep-hpe and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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