Examining the role of fairness in high stakes allocation decisions

Experimental evidence has prompted a debate over the nature of utility functions in which people are concerned about the amount others earn. We examine this issue by examining behavior across three variants of the dictator game. Using data from 195 dictators allocating as much as $100 each, we observe that the origin of endowments is critically linked to allocation behavior: when subjects could reasonably believe that disproportionately low offers would be considered “fair,” only 8–12 percent of dictators make positive offers. Further, there is evidence that an increase in stakes leads to a less than proportionate increase in monies transferred. Finally, examining the comparative static results from these allocation decisions, we find that recent theoretical models do a respectable job of explaining the data patterns.