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lec11a - 14.127 Behavioral Economics Lecture 11 Fairness...

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14.127 Behavioral Economics. Lecture 11 Xavier Gabaix April 22, 2004 Fairness
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1 Fairness Fehr and Schmidt, QJE 99 1.1 Stylized facts Ultimatum game proposer gets $1 and propose a share s to the respondent respondent accepts (payoffs (1 s, s ) ) or rejects (payoffs (0 , 0) ) typical strategy s = . 3
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Market game with multiple proposers 1 responder and n 1 proposers R accepts the highest offer empirically s = 1 Market game with multiple responders n 1 responders and 1 proposer if at least one responder accepts, the contract is executed (responder share is divided between all responders that accepted) empirically s = 0
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1.2 Model Utility of a player i from allocation ( x 1 , ..., x n ) to all n players is U i ( x 1 , ..., x n ) = x i α i x j x i + β i n 1 n 1 x i x j + where α i , β i are parameters, 0 β i α i , β i < 1 , and y + = max ( y, 0) . The assumption β i < 1 means that player i always prefers having more rather than less (keeping allocations
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