The human response to unfairness evolved in order to support long-term cooperation(1):
This sense of fairness is the basis of lots of things in human society, from wage discrimination to international politics (…) What we’re interested in is why humans aren’t happy with what we have, even if it’s good enough, if someone else has more. What we hypothesize is that this matters because evolution is relative. If you are cooperating with someone who takes more of the benefits accrued, they will do better than you, at your expense. (Sarah Brosnan as quoted by Phys.org in “Human sense of fairness evolved to favor long-term cooperation”)
Human sense of fairness is a puzzle for economists. They don’t understand why, for example, pretty much everyone thinks that CEOs get paid too much(2). Sarah Brosnan and Frans de Waal find that humans and other species seem to share basic reactions to inequity, which serve the need for sustained cooperation:
The hallmark of the human sense of fairness is the idea of impartiality; that is, human fairness or justice is based on the idea of appropriate outcomes applied to everyone within the community, not just a few individuals, and, in particular, not just oneself. Thus, outcomes are judged against a standard, or an ideal. There is variation in this ideal across cultures or situations, but there is consistency within a given context.
Fairness is not for the faint of heart. Individuals must have emotional control to forego short-term positive outcomes in order to gain long-term ones. Only after 7 years of age do children resist the temptation of rewards and begin to refuse low offers for strategic reasons.
You can read more about fairness here.
(1) Sarah F. Brosnan, Frans B. M. de Waal, “Evolution of responses to (un)fairness”, Science DOI: 10.1126/science.1251776
(2) Sorapop Kiatpongsan and Michael I. Norton “How Much (More) Should CEOs Make? A Universal Desire for More Equal Pay”, In Press, Perspectives on Psychological Science
I’ve seen at least two serious approaches to the analysis of fairness : the first one by Morgenstern-Von Neumann and the second by Kahneman. Both are now classics. The first one is a super classic that is included in the early Utility Theory – Game Theory. The second one is a refinement of psychology applied to rational economics called Prospect Theory. In Utility/Game theory there are famous two player games in which the two players are presented with a wealth distribution problem. In one of the most famous ‘games’, player one will break a prize down to two parts and pick one first, player two will have to get the other part. Researchers try to convince players that this is a synthetic game in which they take part ‘only once’. Later they will never see the other man again. In this experiment the researcher is fighting against the ‘fairness template’ in human mind. With quite many subjects there is a fair behaviour. They cut the price into two equal shares. This is completely contrary to Utility theory. The rational behaviour for a one-time interaction is ‘take it all and leave nothing for the other player’. The fact is that the human mind struggles with the possibility of subsequent future interactions with the abused player. It happens that there is a modulation effect based on the plausibility of having a future interaction with the abused player and the projection of a possible retaliation. The more plausible it looks for the player that breaks down the prize, the more he approaches to equal parts of the prize (perfect fairness). Prospect theory makes it all much more ‘real’ when it takes into account the nature of the prize for both players : their present wealth and their present social prestige. A prize of $1 will not trigger any deep behaviour for anyone that has a fortune of $1Million. Breaking down a prize of $50000 for two players when each one previously possess less that $1000 is much more low level connected. (The modulation is explained by Prospect theory). Again the social effect comes to play here. How plausible is it that what I did in this interaction is ever known by my community? And how will this knowledge affect me?. So in Prospect theory terms any rational player that is forced to frequent wealth-distribution interactions in a social group can never be sure to be retaliated in the future by his victims or by a social reaction so the best strategy is fairness. Of course there are psychological profiles of humans that we all know that defy the best strategy. For instance the ‘killer worker’. The killer abuses in all ‘power situations’ which is to say ‘he takes the whole prize for himself in every working interaction’. Forcing himself to ignore the possibility of an inversion of powers in the future and thus defying the possibility of retaliation. This behaviour is built carefully on the reactions of the social group that surrounds the player. If the group favours killers (by not punishing them) an otherwise fair worker will become a killer. Otherwise in such group he will become a victim of many.
Adolfo, thank you very much for your thorough comment. I see that you’ve got my point. In classical economic theory and therefore in most economic analysis with real-world implications fairness is not taken into account. Why? Because economists are proud to care only about so-called economic efficiency and economic analysis is usually done based on “static” situations (the one time game) Fairness pretty much appears as soon as you take into account further interactions which btw it’s the usual case. However mainstream economics is mostly oblivious to that.