Market experience is a reference point in judgments of fairness

Date: 2013-07
By: Holger Herz
Dmitry Taubinsky
URL: http://d.repec.org/n?u=RePEc:zur:econwp:128&r=net
People’s desire for fair transactions can play an important role in negotiations, organizations, and markets. In this paper, we show that markets can also shape what people consider to be a fair transaction. We propose a simple and generally-applicable model of path-dependent fairness preferences, in which past experiences shape preferences, and we experimentally test the model’s predictions. We find that previous exposure to competitive pressure substantially and persistently reduces subjects’ fairness concerns, making them more likely to accept low offers. Consistent with our theory, we also find that past experience has little effect on subjects’ inclinations to treat others unfairly.
Keywords: Social preferences, reference points, fairness, bargaining
JEL: C78