A Study of Students' Views of Market Fairness

INTRODUCTION 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 goods produced? When it comes to discussing third question, typical instructor in United States focuses on role played by markets. However, Colander (2003) contends that current majority of principles textbooks excludes discussion of a broader set of failures-of-market outcomes: failures in which market is doing everything it is supposed to be doing, but society is still unhappy with result (p. 83). In today's society, recently highlighted by various Occupy movements, many people view issue as whether market is fair, or at least perceived to be fair. Kahneman, Knetsch, and Thaler (1986b) studied role played by perception of in explaining economic situations. Specifically, two primary objectives of study were to identify community standards of price and possible implications of rules of for market outcomes. authors created 18 scenarios and collected data over 14 months in a series of telephone interviews of randomly selected residents of Toronto and Vancouver. respondents were composed of an approximately equal number of both males and females, were read no more than five of 18 scenarios, and were asked to respond to each scenario with categories Completely Fair, Acceptable, Unfair, and Very Unfair. In article, two favorable responses and two unfavorable responses were collapsed into categories of Acceptable and Unfair to indicate proportions of respondents who judged 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 use and exploitation of market power. authors concluded: findings of this study suggest that many actions that are both profitable in 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 18 scenarios developed by Kahneman et al., and created six additional contrasting scenarios. authors used a total of 22 scenarios in a survey mailed to randomly selected business executives. authors' intent was to determine whether a sample of business executives would respond to scenarios in a different manner than general population sample by Kahneman et al. With 154 business executives responding, authors concluded that business executives have a different perception of market than general public. Specifically, business executives responding to survey were less inclined to judge profit-maximizing behavior as unfair. Shiller, Boycko, and Korobov (1991) designed 36 scenarios pertaining to fundamental parameters of human behavior related to success of free markets (p. 386, italics in original). 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. responses were categorical in nature, with about one-half of scenarios having binary Yes or No responses and others having either three or four specified categories. In paper, scenarios were grouped into content areas such as fairness of importance of incentives, the perceptions of speculation, attitudes towards business, and entrepreneurial activities. For scenarios pertaining to of pricing, authors concluded the reported evidence suggests there is actually little ground that Soviets are characteristically more hostile toward free-market prices (p. …

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