Academic journal article Journal of Economics and Economic Education Research

A Study of Students' Views of Market Fairness

Academic journal article Journal of Economics and Economic Education Research

A Study of Students' Views of Market Fairness

Article excerpt

INTRODUCTION

The typical introductory Economics text discusses "The Three Questions" that any society must address: 1) What goods are to be produced?; 2) How are those goods to be produced?; and 3) For Whom are the goods produced? When it comes to discussing the third question, the typical instructor in the United States focuses on the role played by markets. However, Colander (2003) contends that the current majority of principles textbooks "excludes discussion of a broader set of failures-of-market outcomes: failures in which the market is doing everything it is supposed to be doing, but society is still unhappy with the result" (p. 83). In today's society, recently highlighted by the various "Occupy" movements, many people view the issue as whether the market is "fair", or at least perceived to be "fair".

Kahneman, Knetsch, and Thaler (1986b) studied the role played by the perception of fairness in explaining economic situations. Specifically, the two primary objectives of the study were to identify community standards of price fairness and the possible implications of the rules of fairness for market outcomes. The authors created 18 scenarios and collected data over 14 months in a series of telephone interviews of randomly selected residents of Toronto and Vancouver. The respondents were composed of an approximately equal number of both males and females, were read no more than five of the 18 scenarios, and were asked to respond to each scenario with the categories "Completely Fair", "Acceptable", "Unfair", and "Very Unfair". In the article, the two favorable responses and the two unfavorable responses were collapsed into the categories of "Acceptable" and "Unfair" to indicate the proportions of respondents who judged the action acceptable or not. Kahneman et al. found respondents had a strong aversion to price rationing (resulting in some price friction), consumers were more tolerant of price changes resulting from a changing cost structure (than price changes attributed to demand considerations), and a general dislike for the use and exploitation of market power. The authors concluded:

The findings of this study suggest that many actions that are both profitable in the short run and not obviously dishonest are likely to be perceived as unfair exploitations of market power. Such perceptions can have significant consequences if they find expression in legislation or regulation (Kahneman, Knetsch, and Thaler, 1986b, pp. 738-739).

Gorman and Kehr (1992) used 16 of the 18 scenarios developed by Kahneman et al., and created six additional contrasting scenarios. The authors used a total of 22 scenarios in a survey mailed to randomly selected business executives. The authors' intent was to determine whether a sample of business executives would respond to the scenarios in a different manner than the general population sample by Kahneman et al. With 154 business executives responding, the authors concluded that business executives have a different perception of market fairness than the general public. Specifically, the business executives responding to the survey were less inclined to judge the profit-maximizing behavior as unfair.

Shiller, Boycko, and Korobov (1991) designed 36 scenarios pertaining to "fundamental parameters of human behavior related to the success of free markets" (p. 386, italics in original). The 36 scenarios were partitioned into three sets of 12 and administered in a series of telephone interviews to residents of Moscow and New York City. The responses were categorical in nature, with about one-half of the scenarios having the binary "Yes" or "No" responses and the others having either three or four specified categories. In the paper, the scenarios were grouped into content areas such as "fairness of pricing", "importance of incentives", "the perceptions of speculation", "attitudes towards business", and entrepreneurial activities. For the scenarios pertaining to the fairness of pricing, the authors concluded "the reported evidence suggests there is actually little ground that the Soviets are characteristically more hostile toward free-market prices" (p. …

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