Purpose – The purpose of this short paper is to provide an alternative method to explain the reason why the outcome of the ultimatum game based on the well‐known self‐interest model is not feasible in real life. Design/methodology/approach – Contrary to traditional models which treat fairness as a variable of the utility function, the paper takes fairness as a constraint to the utility function. The problem is solved through the standard incentive theory and bargaining theory. Findings – It was found that fairness constraints play an important role in determining the eventual outcome of the ultimatum game. Research limitations/implications – The paper's approach may set up a useful framework for incorporating fairness into economics, and bridge the gaps between the fairness approach and the standard incentive theory and bargaining theory. Practical implications – When tackling the problem of distribution based on fairness, the paper shows that the cultural background and special situation should be taken seriously. Originality/value – In this paper, the concept of the fairness constraint is introduced into a formal framework.
Humanomics – Emerald Publishing
Published: Aug 29, 2008
Keywords: Game theory; Utility theory; Economics; Constraint handling
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