Fairness In Risky Environments: Theory And Evidence

Theories of fairness have typically used the assumption of ex-ante known pie size. Pie size, however, is rarely known ex ante. Using three simple allocation problems generally known as dictator, ultimatum and trust games, the authors explore the influence of ex-ante unknown pie size of varying degrees of risk on individual behavior. They derive theoretical predictions for two of these games using utility functions that capture additively separable constant relative risk aversion and inequity aversion.