In behavioral science, fairness refers to our social preference for equitable outcomes. This can present itself as inequity aversion, people’s tendency to dislike unequal payoffs in their own or someone else’s favor. The tendency has been documented through experimental games, such as the ultimatum, dictator, and trust games (Fehr & Schmidt, 1999).

A large part of fairness research in economics has focused on prices and wages. With respect to prices, for example, consumers are generally less accepting of price increases as result of a short term growth in demand than rise in costs (Kahneman et al., 1986). With respect to wages, employers often agree to pay more than the minimum the employees would accept in the hope that this fairness will be reciprocated (e.g. Jolls, 2002). On the flip side, perceived unfairness, such as excessive CEO compensation, has been behaviorally associated with reduced work morale among employees (Cornelissen et al., 2011).

 

Cornelissen, T., Himmler, O., & Koenig, T. (2011). Perceived unfairness in CEO compensation and work morale. Economics Letters, 110, 45-48.

Fehr, E., & Schmidt, K. M. (1999). A theory of fairness, competition, and cooperation. The Quarterly Journal of Economics, 114, 817-868.

Jolls, C. (2002). Fairness, minimum wage law, and employee benefits. New York University Law Review, 77, 47-70.

Kahneman, D., Knetsch, J. L., & Thaler, R. (1986). Fairness as a constraint on profit seeking: Entitlements in the market. The American Economic Review, 76(4), 728-741.