Abstract
Fehr and Schmidt (FS) introduced an influential social utility function for individuals in interpersonal contexts that captures self-centered inequity aversion. The value of this social utility function lies in its exceptionally good balance between parsimony and fit. This paper provides a preference foundation for exactly the model of FS with preference conditions that exactly capture the exceptionally good balance of FS. Remarkably, FS is a special case of Schmeidler’s rank-dependent utility for decision under uncertainty.
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The author would like to thank Marc Fleurbaey, Itzhak Gilboa, Ingrid M. T. Rohde, Klaus M. Schmidt, Peter P. Wakker and two anonymous referees for helpful comments and suggestions. Kirsten Rohde’s research was made possible through a VENI grant from the Netherlands Organization for Scientific Research (NWO).
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Open Access This is an open access article distributed under the terms of the Creative Commons Attribution Noncommercial License (https://creativecommons.org/licenses/by-nc/2.0), which permits any noncommercial use, distribution, and reproduction in any medium, provided the original author(s) and source are credited.
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Rohde, K.I.M. A preference foundation for Fehr and Schmidt’s model of inequity aversion. Soc Choice Welf 34, 537–547 (2010). https://doi.org/10.1007/s00355-009-0413-5
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DOI: https://doi.org/10.1007/s00355-009-0413-5
Keywords
- Preference Condition
- Prospect Theory
- Covalent Additivity
- Constant Distribution
- Inequity Aversion