A Theory of Peer-Induced Fairness in Games

Teck-Hua Ho, University of California, Berkeley, USA
Xuanming Su, University of California, Berkeley, USA
In many real-life situations, people get upset when they receive a worse deal than their peers. We term this concern for social comparison peer-induced fairness. We formally model this phenomenon in the context of two independent ultimatum games played in sequence by a leader and 2 followers. Our experimental results show that the leader does formulate the second offer based on the second follower’s expectation of what the first offer is. In addition, the second follower is more likely to reject when she believes that the first follower receives a high offer. We discuss how peer-induced fairness might limit the extent of price discrimination due to a risk of boycott by some customers.
[ to cite ]:
Teck-Hua Ho and Xuanming Su (2009) ,"A Theory of Peer-Induced Fairness in Games", in NA - Advances in Consumer Research Volume 36, eds. Ann L. McGill and Sharon Shavitt, Duluth, MN : Association for Consumer Research, Pages: 76-78.