1-2000-An Experimental comparison of the fairness model.pdf

An Experimental Comparison of the Fairness Models by Bolton and Ockenfels and by Fehr and Schmidt¤ Dirk Engelmannyand Martin Strobelz Humboldt-Universit?t zu Berlin January 29, 2000 Abstract In this note we present an experiment to compare the two compet- ing fairness theories by Bolton and Ockenfels and by Fehr and Schmidt. For most experiments that these theories have previously been applied to, they make similar predictions so that it is di￠cult to compare their predictive accuracy. We designed a very simple experiment that induces opposing predictions made by both theories. If the maximiza- tion of total payo¤ is in line with the decision predicted by Fehr and Schmidt, almost all subjects decide accordingly, whereas if it is in line with the prediction by Bolton and Ockenfels, decisions are dispersed. 1 Introduction Attention has recently been drawn to Bolton and Ockenfels’ “Theory of Eq- uity, Reciprocity and Competition” [forthcoming], and Fehr and Schmidt’s “Theory of Fairness, Competition, and Cooperation” [1999], in the remain- der of this note denoted by ERC and FS, respectively. Both groups of authors quote an impressive number of experimental results that can be ex- plained by their theories. However, if one wants to compare the predictive ¤We thank Simon G?chter, Wieland Müller and Hans Normann for helpful comments. Financial support by the Deutsche Forschungsgemeinschaft through Sonderforschungs- bereich 373 and by the Deutsche Girozentrale - Deutsche Kommunalbank is gratefully acknowledged. yInstitut für ?¤entliche Wirtschaft und Wirtschaftspolitik, Humboldt-Universit?t zu Berlin, Spandauer Str. 1, D-10178 Berlin, Germany, FAX: +49-30-2093 5787, phone: +49- 30-2093 5786, e-mail: engelman@wiwi.hu-berlin.de zInstitut für Wirtschaftstheorie III, Humboldt-Universit?t zu Berlin, Spandauer Str. 1, D-10178 Berlin, Germany, FAX: +49-30-2093 5704, phone: +49-30-2093 5724, e-mail: strobel@wiwi.hu-berlin.de 1 power of these two theories, most of the experiments