Theories of Fairness and Reciprocity

Most economic models are based on the self-interest hypothesis that
assumes that all people are exclusively motivated by their material
self-interest. In recent years experimental economists have
gathered overwhelming evidence that systematically refutes the
self-interest hypothesis and suggests that many people are strongly
motivated by concerns for fairness and reciprocity. Moreover,
several theoretical papers have been written showing that the
observed phenomena can be explained in a rigorous and tractable
manner. These theories in turn induced a new wave of experimental
research offering additional exciting insights into the nature of
preferences and into the relative performance of competing theories
of fairness. The purpose of this paper is to review these recent
developments, to point out open questions, and to suggest avenues
for future research.