Does competition inhibit fairness and altruism?

Abstract

In many business situations, one party makes an offer (e.g., broker offers a commission to client) that can either be accepted or rejected by the other party. If it is rejected, both gain nothing. Common sense, business experience and theory suggest that the proposer would partition the sum so that the other party receives a minimal amount. However, experiments have shown that the offer is more equitable, and behavioralists explain this as altruism. In this paper, we reconcile these two conflicting conclusions by introducing multiple proposers and an important element that is present in most business situations: competition for gains among those proposing. We find that this element of competition restores the theoretical expectation of a purely monetary self-interest decision, and reduces the role for altruism. Our results suggest that while behavioral altruism/fairness considerations are dominant in isolated experiments, the competitiveness of business situations tends to marginalize these factors, and renders business decisions closer to the pure self-interest model.