Fairness in Bargaining and Markets (eBook)

Acknowledgements 6
Contents 7
Symbols 10
Introduction 13
References 17
1 Bargaining Theory 18
1.1 The Axiomatic Approach 19
1.2 The Strategic Approach 21
1.3 A Strategic Perspective on Market Exchange 23
1.4 Discussion 27
References 28
2 Game Theory and Fairness Preferences 29
2.1 Evidence from Experiments 30
2.2 Equity-based Approaches 32
2.3 Reciprocity 33
2.3.1 Kindness Term 34
2.3.2 Reciprocation Term 37
2.3.3 Utility Function 37
2.3.4 Equilibrium Concepts 39
2.3.5 Explanatory Power 41
2.4 Summary of Fairness Approaches 42
References 43
3 Reciprocity—An Indirect Evolutionary Analysis 45
3.1 The Model 49
3.1.1 The Material World 49
3.1.2 Agents' Preferences 50
3.1.3 Stability Concepts 51
3.2 Evolutionary Analysis 52
3.2.1 The Ultimatum Game 52
3.2.2 The Dictator Game 56
3.2.3 The Mixed Environment 58
3.2.4 Restricted Parameters in the Mixed Environment 59
3.3 Comparison with a Model Based on Inequity Aversion 62
3.4 Concluding Remarks 63
References 64
4 Fairness Norms in Ultimatum Exchanges 66
4.1 Experimental Design 68
4.2 Experimental Results 70
4.2.1 Seller Behavior with Reference Points 70
4.2.2 Proposer Behavior: Are Small Reference Prices Negligible? 72
4.2.3 Buyer Behavior with Reference Points 73
4.2.4 Efficiency 75
4.3 Discussion of Experimental Results 76
4.4 Concluding Remarks 82
Appendix: Instructions 83
References 89
5 Fairness, Price Stickiness, and History Dependence in Decentralized Trade 90
5.1 The Model 92
5.2 Analysis of the Model 94
5.2.1 Equilibrium Price 95
5.2.2 Self-confirming Price Conventions 100
5.3 Concluding Remarks 106
References 109
6 Generalizations and Extensions of the Decentralized Trade Model 111
6.1 Matching Frictions 112
6.2 Diverging Reference Prices of Buyers and Sellers 113
6.3 Mutant in the Market 115
6.4 Two Types of Agents 121
6.5 Multiple Agent Types 125
6.6 Heterogeneous Discount Factors 126
6.7 Shape of the Utility Function 129
6.8 A Model with One-Time Entry 132
6.9 Some Thoughts on Incomplete Information 135
6.10 Concluding Remarks 137
Appendix: Price Formulas 140
References 145
7 Price Rigidity in an Experimental Market 146
7.1 Theoretical Background and Experimental Design 148
7.2 Experimental Procedures 151
7.3 Trial Setup 154
7.4 Trial Results 154
7.5 Concluding Remarks 162
Appendix: Instructions 164
References 173
List of Figures 175
List of Tables 177
Index 178