TITLE:
Endogenous versus Exogenous Fairness Indices in Repeated Ultimatum Games
AUTHORS:
Mohamed I. Gomaa, Stuart Mestelman, S. M. Khalid Nainar, Mohamed Shehata
KEYWORDS:
Fairness, Risk Attitudes, Social Distance, Ultimatum Game, Value Orientation
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.6,
September
8,
2017
ABSTRACT: In ultimatum games, we often observe some
participants rejecting offers that may be normally viewed as “fair” while
others accept even lower offers that are typically viewed as “unfair”. The
objective of this study is to construct and examine an endogenous fairness
index that helps explain this phenomenon. To achieve this objective, we
construct a repeated ultimatum game environment in which each participant plays
the roles of both the sender and the receiver with two different participants. We
conjecture that the ratio of the amount that
an individual receives divided by the amount the individual sends, captures the benchmark of what
constitutes a fair offer for that individual when an offer-acceptance decision
has to be made. Our design includes a fixed- and random-partners treatment
in the repeated ultimatum game as an attempt to identify and isolate the
effects of social distance on offer-acceptance decisions. In addition to the
inclusion of the fairness indices in the offer-acceptance models, we introduce measures of social value orientations and risk attitudes as
control variables in our analyses. We find that our belief-related fairness
index is, in some cases, a better explanatory variable for offer-acceptance
decisions than the conventional “offer index” and in other cases significantly
augments the “offer index”. As well, the offer-acceptance model including the
belief-related fairness index can account for likelihoods of accepting less
fair offers that can, at times, exceed likelihoods of accepting more fair
offers.