The fair division of losses

• Applicants: Professor Dr. Roger Berger; Professor Dr. Bodo Vogt
• Subject Area: Empirical Social Research ; Economic Theory
• Term: from 2017 to 2022
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 362787969

This project aims at the examination of distribution problems of individual and corporate actors. The current Covid 19 crisis strikingly shows that in many real-life situations not only gains need to be divided, but that often (monetary) costs, shortage (of toilet paper, or worse, of respirators or intensive care units), say losses are to be divided. This raises the question: How do actors decide in situations in which losses have to be divided and what influences their behavior?The research tools of the precursor project have proven their utility and shall therefore be retained. This means that we continue to combine Game Theory with assumptions of the Prospect Theory and apply it to Ultimatum Games (UG) and Dictator Games (DG) to further investigate the role of fairness in bargaining over losses. In our previous project, we were able to show that losses can be realistically induced in experiments using a monetary prepaid mechanism. We showed that people are less generous in one-shot decisions over losses as in similar decisions in the domain of gains. Our previous findings indicate that this eroding of the fairness norm is due to an interaction of subjects’ fairness preferences (injunctive norm) and our experimental manipulation of the decision situation (descriptive norm).In this follow-up project we want to pursue this approach on two tracks. First, we want to conduct the series of experiments on one-shot decisions that had been scheduled for the precedent project, namely one-shot decisions in the loss domain with the possibility of sanctions. It is well known that already the (costly) possibility of sanctions increase cooperative (here: fair) behavior, and that without having the sanctions actually being executed. However, this is by no means trivial for the domain of losses. Costly sanctions here do not lead to further lost profits - as is usually the case in laboratory experiments - but to additional losses. This makes sanctions and thus the stabilization of the fairness norm theoretically less likely. The investigation of norms in fair decisions was prevented by the Covid 19 crisis since it was inhibited to conduct laboratory experiments.Second, we want to evaluate the robustness of the fairness norm in repeated decisions when expectations are changed. We expect that initially robust fair decisions will change over time if subjects’ expectations regarding the behavior of other subjects (descriptive norm) have been proved wrong. In this regard, we already conducted a pilot study with repeated DG. This study shows empirically that in both domains, gains and losses, fairness norms erode when decisions are made repeatedly. Furthermore, the behavioral dynamics in the loss domain differ from those in the domain of gains. In this follow-up study we want to systematically examine these findings using our previously described theoretical and methodological instruments in an experimental series with repeated UG and DG.

• DFG Programme: Research Grants