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Fairness, Price Stickiness, and History Dependence in Decentralized Trade

  • Christian KorthEmail author
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Part of the Lecture Notes in Economics and Mathematical Systems book series (LNE, volume 627)

Abstract

This chapter investigates the implications that social preferences have for the stationary strategic equilibrium of such a decentralized market. Agents are supposed to be averse to unfairly unfavorable as well as unfairly favorable deals in the spirit of Fehr and Schmidt (1999), but we stay rather close to standard individualistic preferences: the negative weights on advantageous and disadvantageous deviations from what is considered as the fair benchmark are such that utility remains strictly increasing in own surplus share. And in contrast to the original Fehr-Schmidt model, the fair split need not automatically be a 50–50 division; any price between sellers’ cost and buyers’ willingness to pay may be the one which—for whatever reasons— is agents’ reference point in a given market. This makes it possible to consider a more flexible notion of fairness than is usually done. It is in line with cognitive dissonance theory from psychology and the noteworthy experiments of Binmore et al. (1991; 1993), where subjects who were triggered to play different bargaining equilibria ended up considering very different surplus distributions as “fair.”

Keywords

Housing Market Equilibrium Price Social Preference Reference Price Reservation Price 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2009

Authors and Affiliations

  1. 1.School of Law, Business and EconomicsUniversity of BayreuthBayreuthGermany

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