Incorporating Fairness into Game Theory and Economics

TLDR

Fairness equilibria arise when agents prefer to help those who help them and punish those who hurt them, leading to mutual‑max or mutual‑min outcomes. The study examines economic scenarios to assess how fairness considerations affect welfare outcomes. The authors analyze multiple economic models to evaluate the welfare consequences of incorporating fairness. They prove that every mutual‑max or mutual‑min Nash equilibrium is a fairness equilibrium, and that fairness equilibria approximate mutual‑max/min outcomes for small payoffs and approximate Nash equilibria for large payoffs. © 1993 American Economic Association.

Abstract

People like to help those who are helping them and to hurt those who are hurting them. Outcomes rejecting such motivations are called fairness equilibria. Outcomes are mutual-max when each person maximizes the other's material payoffs, and mutual-min when each person minimizes the other's payoffs. It is shown that every mutual-max or mutual-min Nash equilibrium is a fairness equilibrium. If payoffs are small, fairness equilibria are roughly the set of mutual-max and mutual-min outcomes; if payoffs are large, fairness equilibria are roughly the set of Nash equilibria. Several economic examples are considered and possible welfare implications of fairness are explored. Copyright 1993 by American Economic Association. (This abstract was borrowed from another version of this item.)