Envy Freeness in Experimental Fair Division Problems

In the recent experimental literature several social preference models have been suggested that address observed behavior not reducible to the pursuit of self-interest. Inequality aversion is one such model where preferences are distributional. Frequently, envy is suggested as the underlying rationale for inequality aversion. Envy is a central criterion in the theoretical literature on fair division, whose definition (Foley 1967) differs from the more casual use of the word in the experimental literature. We present and discuss results from free-form bargaining experiments on fair division problems where the role of envy in Foley’s sense can be analyzed and compared to social preferences. We find that envy freeness does matter as a secondary criterion.Fairness, Envy Freeness, Social Preferences, Bargaining

Inequality Aversion and Efficiency with Ordinal and Cardinal Social Preferences – An Experimental Study

In this paper, we report on a series of free-form bargaining experiments inwhich two players have to distribute four indivisible goods among themselves. In one treatment, players are informed about the monetary payoffs associated with each bundle of goods; in a second treatment only the ordinal ranking of the bundles is given. We find that in both cases, inequality aversion plays a prominent role. In the ordinal treatment, individuals apparently use the ranks in the respective preference orderings over bundles of goods as a substitute for the unknown monetary value. Allocations that distribute the value (money or ranks, respectively) most equally serve as natural “reference points” forthe bargaining processes. Frequently, such “equal split” allocations are chosen by our subjects even though they are Pareto dominated; but also if they are rejected for that reason they matter in a specific way: whether a Pareto optimal allocation is chosen or not depends on whether or not it is a Pareto improvement relative to the equal split. Interestingly, we find much less Pareto-damaging behavior due to inequality aversion in the ordinal treatment

Distributing Indivisible Goods Fairly: Evidence from a Questionnaire Study

We report the results of a questionnaire study on the fair distribution ofindivisible goods. We collected data from three different subject pools, first- and secondyear students majoring in economics, law students, and advanced economics students with some background knowledge of fairness theories. The purpose of this study is to assess the empirical relevance of various fairness criteria such as inequality aversion, the utilitarian principle of maximizing the sum of individual payoffs, the Rawlsian “maximin” principle of maximizing the payoff of the worst-off individual, and the criterion of envy-freeness (in the sense of Foley, 1967)

Envy Freeness in Experimental Fair Division Problems

Envy is sometimes suggested as an underlying motive in the assessment ofdifferent economic allocations. In the theoretical literature on fair division, following Foley (1967), the term “envy” refers to an intrapersonal comparison of different consumption bundles. By contrast, in its everyday use “envy” involves interpersonal comparisons of well-being. We present and discuss results from free-form bargaining experiments on fair division problems in which inter- and intrapersonal criteria can be distinguished. We find that interpersonal comparisons play the dominant role. The effect of the intrapersonal criterion of envy-freeness is limited to situations in which other fairness criteria are not applicable

Market Organization

In standard economic theory, mechanisms like Adam Smith's "invisible hand" or the Walrasian auctioneer balance aggregate demand and supply and match individuals such that the market clears. Usually, some kind of price adjustment process is assumed without specifying how the implied transactions are organized. In real markets, price adjustment and the matching of buyers and sellers involve considerable exchange of information. Past experience plays an important role in partner selection and in deciding whether a suggested transaction is accepted or not. This implies a process of learning about trading partners and opportunities. The model suggested here, explains how this learning leads to market organization (loyality) or a lack thereof (searching). A decentralized market of a perishable good is considered, where past experience governs the choice of trading partner. Depending on how important past payoffs are and how long the memory is, and depending on the number of players in the market, buyers decide to search or to be loyal. The transition from searching to loyality is very abrupt and resembles phase transitions known from statistical physics. Simulations and empirical evidence from the Marseille wholesale fish market confirm the co-existence of the two behavioral patterns of buyers and the importance of past experience of their behavior.Decentralized Markets, Market Organization, Reinforcement Learning, Matching, Search, Price Distribution.

The Decision to Seek or Be Sought

A one-shot market with two sides is considered where everybody can be matched with at most one person. Individuals have to find trading partners on their own. Whether searching or waiting is the optimal strategy is the central question of this paper. In a market where searching and waiting are done exclusively by one market side, it is more efficient if the long market side searches. In a market where on both sides some individuals search and others stay put, there are also mixed equilibria which are even more efficient. The matching friction due to uncoordinated search by individuals implies that larger market are in general less efficient than a collection of smaller markets.

The focality of dominated compromises in tacit coordination situations:Experimental evidence

We experimentally investigate if subjects in a tacit coordination situation with a conflict of interest tend to choose an equal compromise, even if it is strictly dominated. The data show that this is the case, as long as the compromise payoffs are not too low. Game comparisons suggest that choosing a dominated compromise is a focal point that allows subjects to avoid a costly coordination failure

Efficiency versus equality in bargaining

We consider how the outcome of bargaining varies with changes in the trade-off between equality, efficiency, and total-earnings maximization. We observe that subjects avoid an equal-earnings outcome if it is Pareto inefficient; a large proportion of bargaining pairs avoid an equal and Pareto efficient outcome in favor of one giving unequal and total-earnings maximizing payoffs, and this proportion increases when unequal outcomes imply larger earnings to one of the players, even though this also implies higher inequality; finally, we document a compromise effect that violates the independence of irrelevant alternatives condition