ADVANCES IN APPLIED MICROECONOMICS

ADVANCES IN APPLIED MICROECONOMICS

Economic
Economic Behavior

This chapter investigates the difference between ultimatum games over gains and over losses. Although previous research in decision making has found that individuals treat losses and gains differently, losses have not previously been investigated in strategic situations. In the field, however, the problem of negotiating over losses is as unavoidable and problematic as the problem of negotiating over gains. In addition, data on how we
bargain over losses can shed some theoretical light on fairness preferenc-es. Two experiments use within-subject designs, the first in the U.S. and the second in the U.S., China and Japan. We find that offers and demands are higher in losses than in gains, and that these results hold across the three countries. We adapt Bolton’s (1991) model of fairness to explain the results. Specifically, we extend prospect theory’s loss aversion to
unfairness, suggesting that unfairness in losses looms larger than unfair-ness in gains.

JOHN MORGAN

Elsevier’s Rights Department in Oxford

Elsevier

2005

Novita

PDF

English

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