Third-Party Sanctioning and Compensation Behavior: Findings from the Ultimatum Game

Abstract

We measured the beliefs and behavior of third parties who were given the opportunity to add to or deduct from the payoffs of individuals who engaged in an economic bargaining game under different social contexts. Third parties rewarded bargaining outcomes that were equal and compensated victims of unfair bargaining outcomes rather than punishing perpetrators, but were willing to punish when compensation was not an available option. Beliefs of whether unequal bargaining outcomes were fair differed based on the normative context, but actual punishment, compensation, and rewarding behavior did not. This paper makes a novel contribution to the literature by comparing negative sanctions, positive sanctions, and compensation behavior by third parties.

Keywords: punishment, reward, compensation, social norms, ultimatum games, fairness

JEL Classification: A12, A13, B40, C91