Working Paper: CEPR ID: DP2703
Authors: Ernst Fehr; Klaus Schmidt
Abstract: Most economic models are based on the self-interest hypothesis that assumes that all people are exclusively motivated by their material self-interest. In recent years experimental economists have gathered overwhelming evidence that systematically refutes the self-interest hypothesis and suggests that many people are strongly motivated by concerns for fairness and reciprocity. Moreover, several theoretical Papers have been written showing that the observed phenomena can be explained in a rigorous and tractable manner. These theories in turn induced a new wave of experimental research offering additional exciting insights into the nature of preferences and into the relative performance of competing theories of fairness. The purpose of this Paper is to review these recent developments, to point out open questions, and to suggest avenues for future research.
Keywords: altruism; behavioural economics; competition; contracts; experiments; fairness; incentives; reciprocity
JEL Codes: C70; C90; D00; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fairness preferences (D63) | economic behavior (D22) |
| self-interest hypothesis (D91) | rejection of low offers (D44) |
| perceived fairness (D63) | decision outcomes (D70) |
| generous wage offers (J33) | higher effort levels (D29) |
| punishment options (K40) | cooperation rates (C71) |
| fair treatment (D63) | cooperative behavior (C71) |