Abstract
Among the most momentous findings of behavioral economics is the rehabilitation of the time-honored but long discredited philosophical and religious view of the human being as endowed with a moral sense, notably a sense of fairness or justice. The most heralded tool to explore this proposition-but by no means the only one-was the ultimatum game.
In this game , one player proposes a split of some money; if the other player accepts, both receive the proposed split, but if she rejects they both get nothing. Experiments with this game, which simulates human decision making in distributional conflicts, proved that the behavior of players deviated significantly and systematically from predictions on the basis of the standard behavior of the "economic man" model; specifically, players reject highly unequal splits even though this leaves them with a lower payout than they would receive from saying "yes." On this basis, Fehr and Schmidt developed an innovative "Theory of Fairness, Competition, and Cooperation." They showed that fairness, which serves as a way of assessing justice and is a key feature of cooperative behavior, was not only part and parcel of the economic behavior of real-world subjects but a necessary condition for competition to function as a welfare-enhancing mechanism.