Justice and fairness in the dictator game.

• Author: Schurter, Karl

1. Introduction

   The underlying motives supporting the simplest of decisions may not be as transparent as they seem at first blush. One seemingly simple game is the dictator game (DG), in which Player A is given an endowment that he then allocates to himself and his counterpart, Player B. Player B has no strategic decision to make; Player A's decision is final. The power of a DG is that it isolates the subjects' opinions regarding their just reward relative to their counterparts' without explicitly invoking any strategic or reciprocal considerations for Player B. Hence, whatever amount Player A offers Player B may be considered a "gift." A typical distribution of offers with initial endowment, e, is bimodal at the predicted offer (e, 0) and the equitable offer (0.5e, 0.5e), where the first element indicates the dictator's payoff and the second the receiver's (Camerer 2003). Forsythe et al. (1994) find that 70% of dictators give some amount to Player B, with the gift size averaging roughly 25% of the initial endowment.

   Despite the DG's apparent simplicity vis-a-vis game theory, there are ways to systematically shift the distribution of offers away from or toward the predicted (e, 0) outcome. Changing the social distance by varying the anonymity of the dictator and/or establishing property rights are two such experimental procedures (Hoffman et al. 1994; Hoffman, McCabe, and Smith 1996; Cherry, Frykblom, and Shogren 2002; Koch and Normann 2008; Oxoby and Spraggon 2008). Hoffman et al. (1994) establish property rights for Player A by administering the same random trivia quiz to all of the subjects and then assigning the top performers to the advantaged role of dictator. The subjects are aware of this advantage and feel that they have earned their position. As a result, the modal offer shifts from 0.3e to 0. The random trivia quiz, however, confounds two potential factors of economic decision making. Because the fair procedure is a part of establishing merit, it is impossible to determine how the components affect the dictator's decision: the fair quiz or the meritorious ranking. This experiment attempts to unpack concerns of fairness (the equal opportunity to be advantaged) from concerns of justice (the just reward of merit) in the dictator game. (1) Appendix A provides a background discussion of justice and fairness.

   A practical example is the qualifying laps in a NASCAR race. In a random order, one-by-one, each car goes two laps around the track, and the faster of the two lap times is selected as the car's qualifying lap time. The car with the fastest qualifying lap time "starts on the pole" (is given the first position at the start of the actual race); the second position goes to the second fastest, and so on. The question is: "Do drivers and others involved accept these rankings because every car has an equal opportunity to outperform the others or because the higher-seeded cars merit their advantaged position?" As with the random trivia quiz, the confusion makes it impossible to determine whether it is equal opportunity (which we will refer to as fairness) or greater merit (which we will refer to as justice) that legitimizes giving one car an advantage over others.

   Even though the concepts of justice and fairness are closely linked, their meanings are not identical; that is, they are not perfectly substitutable in everyday use. Wierzbicka (2006) reports that the word "fair" carries a distinct connotation and moreover is uniquely English in origin. Other languages, for example, German, borrow the term from English even when they have equivalent words for the word "just," implying that the conceptual difference between justice and fairness is universal even though there is not always a distinct word in non-English languages. This observed linguistic difference and its ramifications in economics provide the motivating question for this study.

   There have been efforts to incorporate these concepts of fairness, equity, and justice into noncooperative game theory (see, e.g., Rabin 1993; Fehr and Schmidt 1999; Morelli and Sacco 1997, respectively). However, these approaches do not distinguish between justice and fairness, nor do they provide empirical evidence. Frohlich, Oppenheimer, and Eavey (1987) use a laboratory experiment to test the Rawlsian theory that people will behave in order to maximize the minimum payoff for everyone when making decisions behind a veil of ignorance, but to our knowledge, there have not been any previous empirical studies that address the question put forward in this article. For the sake of clarity, the words "fair" and "fairness" in the context of our DG connote equal opportunity via the rules of the game in entitling half of the participants to be the advantaged dictators, and "just" and "justice" connote the reward of a meritorious ranking in the entitlement stage to be the dictator.

   While much of the current research attempts to answer the question why people choose equitable outcomes over the equilibrium, our question asks what makes people feel justified in keeping the endowment. Put another way, we hope to more precisely identify conditions of entitlement under which the social norms vary from an equal split. List elucidates the effect of social norms on dictator behavior when he discusses the "power of changing the giver and recipient expectations" (2007, p. 490), where expectations are defined by social norms derived from the "relevant properties of situations" (p. 491). (2) In this experiment the relevant property is the entitlement stage, and we will vary the conditions under which the property right is established to isolate the impacts of justice and fairness on decisions in a DG. The article proceeds as follows: Section 2 outlines the experimental procedures and hypotheses, section 3 reports our results, and section 4 includes a discussion of our results as they pertain to justice and fairness in DGs.

2. Experimental Design and Procedures

   As the NASCAR example demonstrates, justice and fairness are not mutually exclusive concepts: A meritorious ranking does not preclude a fair procedure, and vice versa. It is also worth noting that the rules that evoke these concepts do not lead to contradictory outcomes. Based upon the rules, participants may deem an allocation to be fair, just, both fair and just, or neither. (3) In the following section, we describe four entitling mechanisms that are the result of conceptually crossing the presence and absence of an explicitly fair procedure (equal opportunity to be advantaged) with the presence and absence of a merit-based hierarchy.

   To isolate the effect of fairness, we begin by establishing property rights on the basis of a fair procedure without establishing one person as more deserving than the other. The game "rock, paper, scissors" or flipping a coin is one way to achieve this in common practice. However, a coin flip must be agreed upon by the two players, as opposed to exogenously imposed by the experimenter. This arises from the fact that an unfair procedure is one in which a player may legitimately protest the result, as may be the case when they have not explicitly agreed to play by the rules. Therefore, informed consent is an integral part of guaranteeing that the entitlement stage of the treatments with fair procedures are indeed fair; players who are fully informed of the procedure and have agreed to participate have no grounds for protest. (4) We implement the explicit consent to the rules of the entitlement stage at the end of the instructions when the subjects must either click an "I Agree" button or a "Leave Now" button. Only players who accept the rules of the game participate in the experiment, while those who do not consent are free to leave. For the purpose of cross-treatment comparisons, we implement this experimental procedure in all treatments.

   In recent studies by Lazear, Malmendier, and Weber (2006) and Dana, Cain, and Dawes (2006), dictators are allowed to opt out of participating in the DG after the entitlement stage, but receivers are not allowed to choose. The opportunity cost of leaving or staying is affected by the different timings of the decision to leave, and consequently, the significance of that decision changes. The opportunity cost of leaving in Lazear, Malmendier, and Weber (2006) is behaving altruistically, and the cost of staying is any discomfort experienced in making a decision as the first mover. Dana, Cain, and Dawes (2006) implement the same nonmaterial costs of leaving and staying, but there is an additional $1 pecuniary opportunity cost incurred by leaving. In our experiment the opportunity cost of leaving is variable between zero and the total endowment, inclusive, and there is no opportunity cost of staying. We are not interested that some people may choose to leave our experiment; rather, the purpose of the "I Agree" button is to be explicit that the participants voluntarily agree to the rules of the game. The option to leave is merely the necessary counterpart to the option to stay.

   In this attempt to isolate justice, we seek a set of experimental procedures that establish one person as the one with greater merit without the use of a fair procedure. Social indicators of status usually serve this purpose. Often there is no indication of how fairly or unfairly someone arrives at his or her current circumstances, yet two people are regarded differently based on how members of the social group judge one's merit relative to that of the other. The challenge in the laboratory is to recreate this phenomenon. The criteria for sorting participants into a meaningful ranking must be customary to the situation and acceptable to those involved. For the purposes of this experiment, we rank the participants by their number of credit hours completed or in progress. This sorting technique solves the problem of recreating the type of meritorious social hierarchies commonly observed in...