FAIRNESS AND RECIPROCITY OF CONSUMERS

Shirish Panchal and Avdhesh S. Jha

No 2014-12-11, Working papers from Voice of Research

Abstract: Behavioral economics have provided insights about consumer behavior in a way that can help us understand consumer preferences and decision making in a better way. Standard economic theory assumes that people make economic choices on the basis of perfect self-interest. This simplifying assumption is useful to understand the concept of economic utility. However study of social preferences through the lens of behavioral economics and psychology points out that people do value the fairness of outcomes for others. They also reciprocate by punishing or rewarding the economic agents with whom they transact, even if they have to incur costs for this reciprocity. This paper highlights fairness perception and other regarding preferences of consumers and economic agents through thought experiments. There are four findings that the authors present in this paper. First: People empathize with the loss making economic agents and are willing to incur costs to transact with them. Second: Fairness perception of consumers gets modulated by the urgency of the need. Third: Consumer’s expectation of positive reciprocity increases with the strength of loyalty with their suppliers. Fourth: Stability of prices and wages is appreciated by people. Key words: Fairness, reciprocity, social preferences, consumer ecosystem, consumer preference, empathy, customer markets, labor markets

Date: 2014-12
New Economics Papers: this item is included in nep-mkt and nep-upt
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Citations: View citations in EconPapers (1)

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