Question

real life example of fairness and reciprocity

Answer 1

In behavioural economics, studies have suggested individuals value the concept of reciprocity. If people are kind to us, we have a greater tendency to respond in kind, behaving more altruistically than self-interest theory suggests.

Reciprocity can also work in a negative sense, with agents willing to punish those who abuse the rules of the game. We can be willing to punish others, even if it harms our own individual utility.

The importance of fairness and reciprocity is that it suggests the importance of social rules for influencing decisions and economic behavior. It challenges assumptions of rational economic man and standard self-interest theories of classical economics.

Another issue with fairness and reciprocity is that not all individuals behave in the same way. Some pursue quite selfish aims, even if they could help the welfare of others at small cost. But, others are quite concerned to prioritize the well-being of others and fairness. It makes modeling economic behavior harder because there is no uniformity in approaches.

These theories are proven to be effective in real life as well as in Economics.

Wage premium above market clearing rates. Classical economic theory suggests firms will pay according to MRP. However, in the real world, labour markets involve significant uncertainties. When you employ a worker, you don’t know how hard they will work; it is not possible to accurately measure productivity. Labour markets require significant trust and good will to work effectively. Therefore, a firm may find it advisable to pay a wage greater than market clearing wage as this encourages the worker to feel they are fairly treated. Concepts of fairness mean that workers may judge their treatment compared to how they are treated compared to others in the workforce. Perceived fairness of work salaries can influence worker motivation, loyalty and company theft.

Or Fairness of tax system can influence rates of tax evasion.