Knowledge (XXG)

Inequity aversion

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852:(the same issue also contains a reply by Fehr and Schmidt and a rejoinder by Binmore and Shaked). A problem of inequity aversion models is the fact that there are free parameters; standard theory is simply a special case of the inequity aversion model. Hence, by construction inequity aversion must always be at least as good as standard theory when the inequity aversion parameters can be chosen after seeing the data. Binmore and Shaked also point out that Fehr and Schmidt (1999) pick a distribution of alpha and beta without conducting a formal estimation. The perfect correlation between the alpha and beta parameters in Fehr and Schmidt (1999) is an assumption made in the appendix of their paper that is not justified by the data that they provide. 859:. The results are mixed. Some authors have found beta larger than alpha, which contradicts a central assumption made by Fehr and Schmidt (1999). Other authors have found that inequity aversion with Fehr and Schmidt's (1999) distribution of alphas and betas explains data of contract-theoretic experiments not better than standard theory; they also estimate average values of alpha that are much smaller than suggested by Fehr and Schmidt (1999). Moreover, Levitt and List (2007) have pointed out that laboratory experiments tend to exaggerate the importance of pro-social behaviors because the subjects in the laboratory know that they are being monitored. 730:) are willing to spend their own money to reduce the income of wealthier group members and increase the income of poorer group members even when there is no cooperation at stake. Thus, individuals who free ride on the contributions of fellow group members are likely to be punished because they earn more, creating a decentralized incentive for the maintenance of cooperation. 749:– The subject chooses how a reward should be split between themself and another subject. If the dictator acted self-interestedly, the split would consist of 0 for the partner and the full amount for the dictator. While the most common choice is indeed to keep everything, many dictators choose to give, with the second most common choice being the 50:50 split. 925:(though see a recent study questioning this interpretation). The latest study shows that chimpanzees play the Ultimatum Game in the same way as children, preferring equitable outcomes. The authors claim that we now are near the point of no difference between humans and apes with regard to a sense of fairness. Recent studies suggest that animals in the 765:– The same result as found in the dictator game shows up when the dictator's initial endowment is provided by their partner, even though this requires the first player to trust that something will be returned (reciprocity). This experiment often yields a 50:50 split of the endowment, and has been used as evidence of the inequity aversion model. 755:– The dictator game is played, but the recipient is allowed to veto the entire deal, so that both subjects receive nothing. The partner typically vetoes the deal when low offers are made. People consistently prefer getting nothing to receiving a small share of the pie. Rejecting the offer is in effect paying to punish the dictator (called the 373: 777:
The last such experiment was identical to the former, where 40% were turned into a gang of robbers, with one catch: the two players were forced to earn the money by stuffing envelopes. In this last experiment, more than two thirds of the players neither took nor gave a cent, while just over 20% still
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modified these experiments slightly to determine if something in the construction of the experiments was prompting specific behaviors. When given a choice to steal money from the other player, even a single dollar, the observed altruism all but disappeared. In another experiment, the two players were
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Fehr and Schmidt showed that disadvantageous inequity aversion manifests itself in humans as the "willingness to sacrifice potential gain to block another individual from receiving a superior reward". They argue that this apparently self-destructive response is essential in creating an environment in
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within the labor pool, to the benefit of the average employee. However, a 2008 paper by Pedro Rey-Biel shows that this assumption can be subverted, and that an employer can use inequity aversion to get higher performance for less pay than would be possible otherwise. This is done by moving away from
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In 2011, Ert, Erev and Roth ran a model prediction competition on two datasets, each of which included 120 two-player games. In each game player 1 decides whether to "opt out" and determine the payoffs for both players, or to "opt in" and let player 2 decide about the payoff allocation by choosing
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Bolton and Ockenfels recommended that the ERC model would benefit from a dynamic theory support and additional research in order to effectively explain more complex games and games that occur over longer time spans. An advanced definition on social preference and a more formal quantitative model
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was used in the places of inequity aversion. The discourses in social studies argue that "inequality" pertains to the gap between the distribution of resources, while "inequity" pertains to the fundamental and institutional unfairness. Therefore, the choice between using inequity or inequality
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between actions "left" or "right". The payoffs were randomly selected, so the dataset included games like the Ultimatum, Dictator, and Trust, as well as other games. The results suggested that inequity aversion could be described as one of many strategies that people might use in such games.
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for advantageous inequality in the final term. The results suggested that a small fraction of selfish behaviors may influence the majority with a fair mind to act selfishly in some scenarios, while a minority of fair-minded behaviors may also affect selfish players to cooperate in games with
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ompetition) in 2000. The model built on the premise that not only pecuniary but also relative payoff can motivate behaviors. In this model, all payoffs are monetary and nonnegative and players aim to maximize the expected value of motivation function. The motivation function of individual
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Research on inequity aversion began in 1978 when studies suggested that humans are sensitive to inequities in favor of as well as those against them, and that some people attempt overcompensation when they feel "guilty" or unhappy to have received an undeserved reward.
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A more recent definition of inequity aversion (resistance to inequitable outcomes) was developed in 1999 by Fehr and Schmidt. They postulated that people make decisions so as to minimize inequity in outcomes. Specifically, consider a setting with individuals
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given a sum of money and the choice to give or take any amount from the other player. In this experiment, only 10% of the participants gave the other person any money at all, and fully 40% of the players opted to take all of the other player's money.
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Fehr and Schmidt proposed that additional research on the inequity aversion should emphasize explicitly formalizing the role of intentions and conducting more thorough testing of the theory against alternative hypotheses.
1458:-choice games to multi-party dealing. It suggests that this could be explained by altruism and a concern for an equitable distribution among all parties (fairness). This paper also used the phrase 'inequity aversion' 487: 712:
which bilateral bargaining can thrive. Without inequity aversion's rejection of injustice, stable cooperation would be harder to maintain (for instance, there would be more opportunities for successful
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for inequity aversion employees is less generous at the optimal production level than contracts for "standard agents" (who don't have inequity aversion) in an otherwise identical two-employee model.
482: 368:{\displaystyle U_{i}(\{x_{1},...,x_{n}\})=x_{i}-{\frac {\alpha _{i}}{n-1}}\times \sum _{j\neq i}{\max(x_{j}-x_{i},0)}-{\frac {\beta _{i}}{n-1}}\times \sum _{j\neq i}{\max(x_{i}-x_{j},0)},} 693: 785:
Other research in experimental economics addresses risk aversion in decision making and the comparison of inequality measures to subjective judgments on perceived inequalities.
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of Inequity Aversion" that attacked the inequity aversion papers of Fehr & Schmidt. In 2010, Shaked has published an extended version of the criticism together with
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but also relative performance against that of co-workers. Where these comparisons lead to guilt or envy, inequity aversion may lower employee morale. According to
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and his colleagues also argue that inequity aversion is essential for cooperation in multilateral settings. In particular, they show that subjects in
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is the total pecuniary payout. The results showed that the behaviors in various games, including unknown pie-size games, best-shot games,
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punishment. In addition, the inequity aversion mindset may affect market outcomes even in the presence of very competitive competition.
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create formal pay structures is so that the inter-employee comparison is seen to be "fair", which they considered "key" for morale and
1915: 634:{\displaystyle \sigma _{i}=\sigma _{i}(y_{i},c,n)={\begin{cases}y_{i}/c,&{\text{if }}c>0\\1/n,&{\text{if }}c=0\end{cases}}} 61:. Researches on inequity aversion aim to explain behaviors that are not purely driven by self-interests but fairness considerations. 1492: 1291: 1358:
Dawes, Christopher T.; Fowler, James H.; Johnson, Tim; McElreath, Richard; Smirnov, Oleg (2007). "Egalitarian motives in humans".
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inequality (at the same total spending) is separate from the case for public healthcare on the grounds of inequity aversion.
1214: 996:"Hospitals for the poor become poor hospitals" directly objects to a predicted decline in medical care, not the health-care 855:
More recently, several papers have estimated Fehr-Schmidt inequity aversion parameters using estimation techniques such as
888: 990: 1683:"Measuring Inequity Aversion in a Heterogeneous Population Using Experimental Decisions and Subjective Probabilities" 418: 1950: 1268: 2145: 2135: 41:
for fairness and resistance to incidental inequalities. The social sciences that study inequity aversion include
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Do Unto Others: A Theory and Experimental Test of Interpersonal Factors in Decision Making Under Uncertainty
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for disadvantageous inequality in the first nonstandard term, and Ξ² parametrizes the distaste of person
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Fowler, James H.; Johnson, Tim; Smirnov, Oleg (2005). "Egalitarian motive and altruistic punishment".
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that is supposed to cause it. The argument that average medical outcomes improve with reduction in
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family also recognize a basic level of fairness, stemming from living in cooperative societies.
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Fehr, Ernst; Schmidt, Klaus M. (2010). "On inequity aversion: A reply to Binmore and Shaked".
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and the structure of inequality could lead either to acceptance or to aversion of inequality.
727: 38: 1556: 1170:"Inequality aversion, efficiency, and maximin preferences in simple distribution experiments" 2040: 2030: 1983: 1932: 1924: 1872: 1855: 1817: 1809: 1770: 1736: 1694: 1663: 1626: 1589: 1525: 1427: 1375: 1324: 1279: 1173: 1134: 1098: 1090: 930: 1756:"What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?" 1418: 1200: 934: 894: 845: 810: 794: 719: 1868: 1722:"Contracting under Incomplete Information and Social Preferences: An Experimental Study" 1371: 1320: 862:
An alternative to the concept of a general inequity aversion is the assumption that the
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Inequity aversion is broadly consistent with observations of behavior in three standard
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that inequity aversion is very important to them. Employees compare not only relative
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games, guessing games etc., can be in fact deduced from ultimatum and dictator games.
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Sarah Brosnan's Emory University homepage listing her inequity research publications.
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Binmore, Ken; Shaked, Avner (2010). "Experimental Economics: Where Next? Rejoinder".
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Fehr and Schmidt's model may partially explain the widespread opposition to
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Binmore, Ken; Shaked, Avner (2010). "Experimental economics: Where next?".
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Inequity aversion should not be confused with the arguments against the
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Inequity aversion research on humans mostly occurs in the discipline of
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Gary E Bolton and Axel Ockenfels provided a more general model called
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Brosnan, S.F.; de Waal, F.B.M. (2003). "Monkeys reject unequal pay".
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Thinking about Inequality: Personal Judgment and Income Distributions
1432: 993: 798: 1969:"Are Apes Inequity Averse? New Data on the Token-Exchange Paradigm" 1504:
Rey-Biel, P. (June 2008). "Inequity Aversion and Team Incentives".
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Preference for fairness and resistance to incidental inequalities
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as incentives for extra performance. He shows that the optimal
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It is natural to think of inequity aversion leading to greater
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Bellemare, Charles; KrΓΆger, Sabine; Van Soest, Arthur (2008).
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Fehr & Schmidt's March 2005 response to Shaked's critique
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Handbook of the Economics of Giving, Altruism and Reciprocity
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In 2005 Avner Shaked distributed a "pamphlet" entitled "The
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Surveys of employee opinions within firms have shown modern
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Summary of the "Monkeys like fair play" Capuchin experiment
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Shaked, Avner (2005). "The Rhetoric of Inequity Aversion".
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Brosnan, S. F.; Schiff, H. C.; de Waal, F. B. M. (2005).
1123:"ERC: A Theory of Equity, Reciprocity, and Competition" 647: 490: 421: 117: 2070:"Dogs Understand Fairness, Get Jealous, Study Finds" 1798:"A Theory of Fairness, Competition, and Cooperation" 1076:"A theory of fairness, competition, and cooperation" 2023:
Proceedings of the National Academy of Sciences USA
687: 633: 476: 367: 1648:. On the Methodology of Experimental Economics. 1611:. On the Methodology of Experimental Economics. 1574:. On the Methodology of Experimental Economics. 323: 236: 1646:Journal of Economic Behavior & Organization 1609:Journal of Economic Behavior & Organization 1572:Journal of Economic Behavior & Organization 1466: 1464: 477:{\displaystyle v_{i}=v_{i}(y_{i},\sigma _{i})} 1409:Ert, Eyal; Erev, Ido; Roth, Alvin E. (2011). 850:Journal of Economic Behavior and Organization 69:aversion may depend on the specific context. 8: 2101:"Monkeys Show Sense Of Fairness, Study Says" 1967:BrΓ€uer, J.; Call, J.; Tomasello, M. (2009). 378:where Ξ± parametrizes the distaste of person 169: 131: 1720:Hoppe, Eva I.; Schmitz, Patrick W. (2013). 1116: 1114: 1112: 1454:examines the increased risk aversion from 2068:Greenfieldboyce, Nell (9 December 2009). 2044: 2034: 1936: 1821: 1657: 1620: 1583: 1519: 1431: 1177: 679: 669: 658: 646: 610: 597: 576: 563: 557: 545: 521: 508: 495: 489: 465: 452: 439: 426: 420: 346: 333: 322: 310: 284: 278: 259: 246: 235: 223: 197: 191: 182: 163: 138: 122: 116: 1121:Bolton, Gary E; Ockenfels, Axel (2000). 707:Punishing unjust success and game theory 1796:Fehr, Ernst; Schmidt, Klaus M. (1999). 1754:Levitt, Steven D; List, John A (2007). 1485:Why wages don't fall during a Recession 1470:Yoram Amiel (author), Frank A. Cowell: 1267:Fehr, Ernst; Schmidt, Klaus M. (2006). 1060: 909:suggest that this research indicates a 778:took some of the other player's money. 1446:Berg, Joyce E., and Thomas A. Rietz's 1196: 1185: 1066: 1064: 688:{\displaystyle c=\sum _{j=1}^{n}y_{j}} 2019:"Chimpanzees play the ultimatum game" 1507:The Scandinavian Journal of Economics 941:"equity" and "justice" as opposed to 937:have not found similar importance on 870:Limitations and future investigations 641:is i's relative share of payoff, and 7: 1215:"Health inequities and their causes" 989:of inequality. For example, the pro- 978:", which does not necessarily imply 821:formal pay structures and using off- 64:In some literature, the terminology 1168:D., Engelmann; M., Strobel (2002). 1039:Reciprocity (cultural anthropology) 879:would also be worth investigating. 1916:Proceedings of the Royal Society B 1802:The Quarterly Journal of Economics 1083:The Quarterly Journal of Economics 25: 2017:Proctor, D.; et al. (2013). 1278:. Vol. 1. pp. 615–691. 97:} who receive pecuniary outcomes 1763:Journal of Economic Perspectives 1699:10.1111/j.1468-0262.2008.00860.x 1530:10.1111/j.1467-9442.2008.00540.x 1976:American Journal of Primatology 917:sense of social "fair play" in 1729:The Review of Economic Studies 539: 514: 471: 445: 358: 326: 271: 239: 172: 128: 1: 1284:10.1016/S1574-0714(06)01008-6 805:(1999), the main reason that 104:. Then the utility to person 81:though it is also studied in 1487:. Harvard University Press, 1450:Discussion Paper, from 1997 1127:The American Economic Review 933:studies in other biological 889:Inequity aversion in animals 1244:Equity: theory and research 991:publicly funded health care 2162: 2107:News, September 17, 2003). 1668:10.1016/j.jebo.2009.11.008 1631:10.1016/j.jebo.2009.12.001 1594:10.1016/j.jebo.2008.10.019 955: 886: 726:games (closely related to 1074:; Schmidt, K.M. (1999). 958:Social inequity aversion 952:Social inequity aversion 2036:10.1073/pnas.1220806110 1814:10.1162/003355399556151 1179:10.26481/umamer.2002013 1095:10.1162/003355399556151 1929:10.1098/rspb.2004.2947 1195:Cite journal requires 734:Experimental economics 689: 674: 635: 478: 369: 1741:10.1093/restud/rdt010 740:economics experiments 690: 654: 636: 479: 370: 1775:10.1257/jep.21.2.153 1139:10.1257/aer.90.1.166 1019:Behavioral economics 789:Studies of companies 645: 488: 419: 415:players is given by 115: 2105:National Geographic 2093:for kids, from the 1877:10.1038/nature01963 1869:2003Natur.425..297B 1380:10.1038/nature05651 1372:2007Natur.446..794D 1329:10.1038/nature03256 1321:2005Natur.433Q....F 1246:. Allyn and Bacon. 1034:Norm of reciprocity 1024:Equality of outcome 964:economic inequality 108:would be given by 66:inequality aversion 18:Inequality aversion 1483:Bewley, T. (1999) 1448:University of Iowa 1049:Social preferences 857:maximum likelihood 728:public goods games 685: 631: 626: 474: 365: 321: 234: 1988:10.1002/ajp.20639 1366:(7137): 794–796. 1253:978-0-205-05929-4 893:An experiment on 883:Non-human studies 613: 579: 306: 301: 219: 214: 31:Inequity aversion 16:(Redirected from 2153: 2146:Moral psychology 2136:Cognitive biases 2078: 2077: 2065: 2059: 2058: 2048: 2038: 2014: 2008: 2007: 1973: 1964: 1958: 1957: 1955: 1949:. 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Retrieved 1218: 1209: 1188:cite journal 1163: 1130: 1126: 1086: 1082: 987:consequences 986: 984: 979: 961: 942: 938: 915:evolutionary 892: 877: 873: 863: 861: 854: 849: 839: 815: 792: 784: 780: 776: 768: 756: 737: 723: 718: 710: 412: 408: 403: 399: 395: 391: 389: 383: 379: 377: 105: 98: 94: 91: 87: 76: 65: 63: 55:anthropology 34: 30: 29: 2131:Game theory 1219:www.who.int 968:democracies 923:chimpanzees 846:Ken Binmore 823:equilibrium 714:free riders 2125:Categories 1823:10535/6398 1224:2023-04-20 1103:10535/6398 1055:References 1002:healthcare 976:compassion 911:biological 903:de Waal, F 899:Brosnan, S 887:See also: 836:Criticisms 818:solidarity 763:Trust game 51:psychology 39:preference 1832:0033-5533 1654:CiteSeerX 1617:CiteSeerX 1580:CiteSeerX 1538:210561618 1516:CiteSeerX 1240:Berscheid 1238:Walster; 1147:0002-8282 998:apartheid 980:injustice 771:John List 769:In 2005, 656:∑ 506:σ 493:σ 463:σ 340:− 315:≠ 308:∑ 304:× 295:− 282:β 276:− 253:− 228:≠ 221:∑ 217:× 208:− 195:α 189:− 93:{1,2,..., 83:sociology 79:economics 47:economics 43:sociology 37:) is the 2055:23319633 2004:14622479 1996:19021260 1947:15705549 1885:13679918 1783:26940779 1707:55369709 1388:17429399 1337:15637787 1242:(1978). 1072:Fehr, E. 1014:Altruism 1008:See also 943:absolute 939:relative 919:primates 842:Rhetoric 830:contract 807:managers 799:salaries 757:proposer 697:Bertrand 612:if  578:if  59:ethology 2046:3568338 1938:1634968 1893:4425495 1865:Bibcode 1840:2586885 1456:lottery 1368:Bibcode 1345:4413236 1317:Bibcode 946:utility 927:canidae 848:in the 701:Cournot 398:quity, 2053:  2043:  2002:  1994:  1945:  1935:  1891:  1883:  1856:Nature 1838:  1830:  1781:  1705:  1656:  1619:  1582:  1557:675227 1555:  1536:  1518:  1491:  1474:, 2000 1396:896174 1394:  1386:  1360:Nature 1343:  1335:  1309:Nature 1290:  1250:  1155:117286 1153:  1145:  994:slogan 935:orders 864:degree 803:Bewley 484:where 57:, and 2000:S2CID 1972:(PDF) 1954:(PDF) 1911:(PDF) 1889:S2CID 1836:JSTOR 1779:S2CID 1759:(PDF) 1725:(PDF) 1703:S2CID 1534:S2CID 1419:Games 1414:(PDF) 1392:S2CID 1341:S2CID 1272:(PDF) 1151:JSTOR 1079:(PDF) 411:) in 2051:PMID 1992:PMID 1943:PMID 1881:PMID 1828:ISSN 1553:SSRN 1489:ISBN 1384:PMID 1333:PMID 1288:ISBN 1248:ISBN 1201:help 1143:ISSN 974:'s " 913:and 901:and 699:and 585:> 2095:BBC 2074:NPR 2041:PMC 2031:doi 2027:110 1984:doi 1933:PMC 1925:doi 1921:272 1873:doi 1861:425 1818:hdl 1810:doi 1806:114 1771:doi 1737:doi 1695:doi 1664:doi 1627:doi 1590:doi 1526:doi 1428:doi 1376:doi 1364:446 1325:doi 1313:433 1280:doi 1174:doi 1135:doi 1099:hdl 1091:doi 1087:114 966:in 716:). 392:ERC 324:max 237:max 2127:: 2072:. 2049:. 2039:. 2025:. 2021:. 1998:. 1990:. 1980:71 1978:. 1974:. 1941:. 1931:. 1919:. 1913:. 1887:. 1879:. 1871:. 1859:. 1834:. 1826:. 1816:. 1804:. 1800:. 1777:. 1767:21 1765:. 1761:. 1733:80 1731:. 1727:. 1701:. 1691:76 1689:. 1685:. 1662:. 1650:73 1625:. 1613:73 1588:. 1576:73 1532:. 1524:. 1512:10 1510:. 1463:^ 1422:. 1416:. 1390:. 1382:. 1374:. 1362:. 1339:. 1331:. 1323:. 1311:. 1286:. 1274:. 1217:. 1192:: 1190:}} 1186:{{ 1172:. 1149:. 1141:. 1131:90 1129:. 1125:. 1111:^ 1097:. 1085:. 1081:. 1063:^ 982:. 948:. 813:. 759:). 742:: 85:. 53:, 49:, 45:, 35:IA 2103:( 2097:. 2076:. 2057:. 2033:: 2006:. 1986:: 1927:: 1895:. 1875:: 1867:: 1842:. 1820:: 1812:: 1785:. 1773:: 1743:. 1739:: 1709:. 1697:: 1670:. 1666:: 1633:. 1629:: 1596:. 1592:: 1559:. 1540:. 1528:: 1436:. 1430:: 1424:2 1398:. 1378:: 1370:: 1347:. 1327:: 1319:: 1296:. 1282:: 1256:. 1227:. 1203:) 1199:( 1182:. 1176:: 1157:. 1137:: 1105:. 1101:: 1093:: 897:( 681:j 677:y 671:n 666:1 663:= 660:j 652:= 649:c 622:0 619:= 616:c 606:, 603:n 599:/ 595:1 588:0 582:c 572:, 569:c 565:/ 559:i 555:y 548:{ 543:= 540:) 537:n 534:, 531:c 528:, 523:i 519:y 515:( 510:i 502:= 497:i 472:) 467:i 459:, 454:i 450:y 446:( 441:i 437:v 433:= 428:i 424:v 413:n 409:i 407:( 404:c 400:r 396:e 394:( 384:i 380:i 363:, 359:) 356:0 353:, 348:j 344:x 335:i 331:x 327:( 318:i 312:j 298:1 292:n 286:i 272:) 269:0 266:, 261:i 257:x 248:j 244:x 240:( 231:i 225:j 211:1 205:n 199:i 184:i 180:x 176:= 173:) 170:} 165:n 161:x 157:, 154:. 151:. 148:. 145:, 140:1 136:x 132:{ 129:( 124:i 120:U 106:i 101:i 99:x 95:n 33:( 20:)

Index

Inequality aversion
preference
sociology
economics
psychology
anthropology
ethology
economics
sociology
Bertrand
Cournot
free riders
James H. Fowler
public goods games
economics experiments
Dictator game
Ultimatum game
Trust game
John List
labor economists
salaries
Bewley
managers
job performance
solidarity
equilibrium
bonus payments
contract
Rhetoric
Ken Binmore

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