BazermanMoore

Perceptions of Fairness 115
underperform those that consider norms of fairness, since customers may punish retailers
for the perceived unfairness of an economically rational action.
These facts raise important questions about how people arrive at fairness judgments.
If you are a hardware store owner trying to set your prices on shovels, you need to know
when price increases will be perceived as unfair. It would be useful to know, for instance,
that fairness judgments seem to be susceptible to the effects of framing (see Chapter 4).
Consider Kahneman, Knetsch, and Thaler’s (1986) following two problems:
Problem A. A company is making a small profit. It is located in a community experiencing
a recession with substantial unemployment but no inflation. Many workers are anxious to
work at the company. The company decides to decrease wages and salaries 7 percent this
year.
Sixty-two percent of respondents thought the company’s behavior was unfair.
Problem B. A company is making a small profit. It is located in a community experiencing
a recession with substantial unemployment and inflation of 12 percent. Many workers are
anxious to work at the company. The company decides to increase wages and salaries
5 percent this year.
In this case, only 22 percent of the participants thought the company’s behavior
was unfair. Despite the similar changes in real income, judgments of fairness were
strikingly different. A wage cut was perceived as an unfair loss, while a nominal gain
that did not cover inflation was more acceptable. We seem to hold certain rules of fair
behavior, such as the rule that wages should go up and not down. Thus, when economic
conditions change for the worse, it is difficult for employers to reduce wages. Our tendency
to rely on nominal quantities, known in the economics literature as a ‘‘money
illusion,’’ makes Problem B seem fair, even though it is essentially equivalent to the
wage change in Problem A. It is logical to think about money in terms of its real buying
power (real dollars), rather than the arbitrary unit of a dollar (nominal dollars), which
changes in value as a result of inflation. In contrast, our assessments of fairness are
largely built around whether the nominal dollar amount of our salary is increasing or
decreasing. Instead of rationally adjusting for inflation before making the judgment, we
follow our intuitive social rules.
Consumers show similar inconsistencies when thinking about discounts and price
increases. Consider the following scenarios from Kahneman, Knetsch, and Thaler
(1986):
Scenario 1: A shortage has developed for a popular model of automobile, and customers
must now wait two months for delivery. A dealer had been selling these cars at list price.
Now the dealer prices this model at $200 above list price.
Scenario 2: A shortage has developed for a popular model of automobile, and customers
must now wait two months for delivery. A dealer had been selling these cars at a discount
of $200 below list price. Now the dealer prices this model at list price.
The majority of individuals (71 percent) view the action in the first scenario to
be unfair, yet a minority (42 percent) considers the action in the second scenario to be