The Impact of Fairness on Decision Making – An Analysis of Different Video Experiments

Experimentally observed deviations of behavior from game theoretic predictions suggest that fairness does influence decision making. Fairness in the sense of equality has become an essential element of economic models aiming at explaining actual behavior (cf. Fehr/Schmidt 1999, Bolton/Ockenfels 2000). In this paper I will argue that equality is not the only fairness norm to be taken into account. Conditional on the game subjects are playing there may be more equity norms than equality, including inequality of payoffs. Since inequitable payoff allocations are advantageous for one player and disadvantageous for the other, opponents may suffer from a self-serving bias in fairness judgments making an agreement impossible. Subjects in the stronger position may exhibit equality aversion whereas players in the weaker position show inequality aversion. Drawing on experimental results using the video method (Hennig-Schmidt 1999) I further show that in a bargaining experiment behavior is goal-oriented; fairness criteria based on equity norms are reference points that influence the decision process which finally leads to observed outcomes. I analyze video experiments of the ultimatum game (Güth/Schmidtberger/Schwarze 1982; Sadrieh/Osterholt 1998), the tripled take game (Sadrieh/Hennig-Schmidt 1999), and an alternating offer bargaining game (Selten 1981; Hennig-Schmidt 1999).