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Journal Article

Incorporating Fairness into Game Theory and Economics

Matthew Rabin
The American Economic Review
Vol. 83, No. 5 (Dec., 1993), pp. 1281-1302
Stable URL: http://www.jstor.org/stable/2117561
Page Count: 22
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Incorporating Fairness into Game Theory and Economics
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Abstract

People like to help those who are helping them, and to hurt those who are hurting them. Outcomes reflecting 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.

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