Is Homo Economicus a five year old?

Yoella Bereby-Meyer

Shelly Fisk

Ben Gurion University of the Negev

Monday, August 24, 2009

Running Head: Fairness perception

Mailing addresses

Yoella Bereby-Meyer

Dept. of Psychology

Ben Gurion University

Beer Sheva 84105, Israel

yoella@bgu..ac.il

This research was supported by the Israel Science Foundation grant number: 146/05

Electronic copy available at: http://ssrn.com/abstract=1460482

 Abstract

Standard economic models assume that people exclusively pursue material self-

interests in social interactions. However, fairness considerations and factors such as

trust and reciprocity affect behavior. This study examined whether negative

reciprocity (punishment for unfair division) develops during childhood.

Kindergarteners, second graders and sixth graders played a mini-Ultimatum Game

against a human proposer or a random machine and a Dictator Game.

Kindergarteners behave according to the standard economic model and show no

fairness considerations. Evidence for negative reciprocity emerged by age seven.

Thus, fairness considerations are not inborn but rather, develop with age.

Electronic copy available at: http://ssrn.com/abstract=1460482

 Standard economic models assume that people are self-interested who seek to

maximize their monetary pay-offs in social interactions. However, fairness

considerations and factors such as trust and reciprocity do affect behavior.

People value outcomes that fit their expectations about fairness and strongly disfavor

outcomes which deviate from them (Lowenstein, Thompson & Bazerman, 1989).

They tend to reward others' cooperative behaviors, while punishing the uncooperative,

even when these actions of reward or punishment are costly to them (Rabin, 1993).

Such fairness preferences help achieve and maintain cooperation in human societies.

This study examines changes in sensitivity to fairness with age. We focused

on negative reciprocity, i.e., a person's tendency to take costly actions that harm

another because he/she perceived the other's intentional behavior as harmful (Cox,

2004). Currently, little is known about the developmental origins of fairness

preferences (Fehr, Bernhard & Rockenbach, 2008) and specifically, about the origin

of negative reciprocity.

In our study, participants played the Ultimatum Game -- a two-player game

often used to study fairness. Players are randomly assigned the role of proposer or

responder. The proposer divides a sum of money between him/herself and the

responder. The responder must decide whether to accept or reject the proposed

division. If accepted, the money is divided accordingly. If rejected, neither player

receives anything. The rational economic model dictates that the responder should

accept any proposal greater than zero, and the proposer should offer the smallest

possible amount of money. Empirical evidence contradicts this prediction. Individuals

do consider fairness in their offers and choices.

Proposers, on average, ask for less than 70% of the total sum. Responders

often reject profitable, but unequal, offers (Guth, Schmittberger & Schwarze, 1982).
They are willing to pay to punish their opponent if he/she asked for too much.

However, when the unfair offer was a result of a random device, a lower rejection rate

of unfavorable outcomes was found (Blount, 1995).

Much of the deviation from the rational model results from proposers' strategic

considerations, as evident by differing results between the Ultimatum Game and its

variant, entitled the Dictator Game, in which the responder cannot reject an offer

(Forsythe, Horowitz, Savin & Sefton, 1994).

Previous studies on children's fairness behavior when playing the Ultimatum

Game have shown that children's tendency to reject unfair offers increases with age

(eg., Murnighan & Saxon, 1998). However, it is not clear whether children aim to

reciprocate and punish their opponent.

If children consider reciprocity, their behavior should depend on their partners'

intentional actions. Consequently, in the Ultimatum Game we compared children's

responses to proposals made by a human proposer (towards whom reciprocity is

sensible) to their responses to proposals from a random device. The difference

between these two conditions as a function of age informs us on the development of

negative reciprocity.

Experiment:

Participants: Fifty-eight kindergarten children (5 year old), 52 second graders (8 year

old) and 57 sixth graders (12 year old) participated in the experiment.

Design:

The experiment consisted of 4 conditions: proposer in the ultimatum game

(PUG), proposer in the dictator game (PDG), responder in the ultimatum game with a

human proposer (RUG), responder in the ultimatum game with a random device

(RUGR).
 The children were randomly assigned to the different conditions. The

experiment was conducted with each child individually. Children were told that none

of the participating children know against whom they are playing. In each condition,

the experimenter ensured that the children understood the game.

Procedure:

In the PUG condition, the child received 10 tokens to divide between him/her

and another child. Two possible divisions were presented to him/her: an equal split

(5:5) or a biased split (8:2). The child was told that the rules dictate that if the

responder rejects the offer, neither of them receives any tokens.

The PDG condition was identical to the PUG except that the children in the

responders' mode made no decision.

In the RUG condition, the child was asked to state his/her decision if the

proposal will be 5:5 and if the proposal will be 8:2. The child was told that he/she

will be rewarded according to the actual proposal and his/her stated response to that

proposal. This "strategy method" guaranties equal numbers of observations for each

division. The order of proposals was balanced across participants.

In the RUGR condition the child was told that a bingo machine generates a

proposed division by drawing one out of an equal number of yellow and purple balls,

with yellow representing an equal split (5:5) and purple representing a biased split

(8:2). The experimenter demonstrated the operation of the bingo device to the child.

Subsequently, the child was asked for his/her decision in the instance that the machine

draws a 5:5 and in the case that it draws an 8:2 division. It was emphasized to the

child that her/his decision affects the other child.

 At the end of the experiment, the children received tokens according to the

game's results that could be exchanged for an educational product (e.g., pens,

notebooks etc).

Figure 1 - Proportion of unfair proposals in the Ultimatum and the Dictator

game as a function of age (A) and rejection rate for the unfair 8:2 proposal made by a

human proposer or a random device for the three age groups (B).

Figure 1B shows that kindergarteners adhere to the standard rational economic

model as they are primarily concerned with personal payoffs. They rarely reject unfair

offers, regardless of the proposers' identity (child or random device). Older children

were more likely to reject unfair offers from human proposers than from a random

device (z=2.08 and z=2.84 for second and sixth graders, respectively, P < 0.05 for

both comparisons). This behavior indicates the emergence of fairness norms and

awareness of the importance of reciprocity.

Similarly, as evident in Figure 1A, kindergarteners propose unfair offers at

equal rates when playing either the Dictator or Ultimatum Games. Second and sixth

graders propose fewer unfair offers in the Ultimatum Game than in the Dictator Game

(z=-2.63 and z=-2.29 for the two age groups, P<0.01), indicating the development of

strategic thinking which is sensitive to negative reciprocity.

 In conclusion, this experiment's results indicate that fairness in the form of

negative reciprocity evolves with age. It adds to recent finding regarding negative

reciprocity (Kesar, Converse, Wang & Epley, 2008) by showing the adherence to

negative reciprocity even when it is costly to the decision maker.

References:

Blount, S. (1995). When social outcomes aren’t fair: The effect of causal attributions

on preferences. Organizational Behavior and Human Decision Processes, 63,

131-144.

Cox, J.C. (2004). How to identify trust and reciprocity. Games and Economic

Behavior, 46, 260-281.

Fehr, E., Bernhard, H., & Rockenbach, B. (2008). Egalitarianism in young children.

Nature, 454, 1079-1083.

Forsythe, R., Horowitz J. L., Savin N. E., & Sefton, M. (1994). Fairness in simple

bargaining experiments. Games and Economic Behavior, 6, 347-369.

Guth, W., Schmittberger, R., & Schwarze, B. (1982). An experimental analysis of

ultimatum bargaining. Journal of Economic Behavior and Organization, 3,

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Keysar, B., Converse, B., Wandg, J., & Epley, N. (2008). Reciprocity is not give and

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Lowenstein, G., Thompson, L., & Bazerman, M. H. (1989). Social utility and decision

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