A self-serving bias occurs when people subconsciously alter their perceptions about what is fair or right in a manner that serves their own interests. Perceptions of what is “a fair day’s work for a fair wage” may well vary according to one’s role in the employment relationship. While it is clear that employee satisfaction affects job performance, and that wage affects employee satisfaction, it is not only the wage per se that determines morale, but also the perceived fairness of the received wage. Thus, it is useful to have agreement between the views of employers and employees. Some evidence from a laboratory experiment indicates these views differ significantly between participant “employers” and participant “employees.” We compare choices (hypothetical in the case of employers) for the amount of costly “effort” to provide in response to a wage that has been determined outside the employment relationship. In the field, managers must be aware of the relationship between fairness in compensation and employee morale as well as their own biases regarding the fairness reference point. Overcoming such biases requires a careful decision-making protocol in compensation decisions.

Considerable experimental evidence suggests that non-pecuniary motives must be addressed when modeling behavior in economic contexts. Recent models of non-pecuniary motives can be classified as either altruism-based, equity-based, or reciprocity-based. We estimate and compare leading approaches in these categories, using experimental data. We then offer a flexible approach that nests the above three approaches, thereby allowing for nested hypothesis testing and for determining the relative strength of each of the competing theories. In addition, the encompassing approach provides a functional form for utility in different settings without the restrictive nature of the approaches nested within it. Using this flexible form for nested tests, we find that intentional reciprocity, distributive concerns, and altruistic considerations all play a significant role in players' decisions.

We explore the effects of social distance on reciprocal behavior in an experiment conducted over the Internet on three continents and in classroom laboratory sessions conducted in Israel and Spain. Our design elicits individual behavior profiles over a range of contingencies, enabling us to identify heterogeneity among our participants. We find that many people show regard for others, even with the apparent social distance inherent with Internet interaction. Even in a virtual experiment, about 28% of the population demonstrate what appears to be positive reciprocity. The classroom laboratory sessions minimize (anonymous) social distance. While the rate of positive reciprocity is higher (43%) with less social distance, the patterns in behavior are surprisingly similar across treatments. To the extent that reciprocity could be a feature of virtual international business, perhaps cooperative behavior is sustainable.

We explore the effects of social distance on reciprocal behavior in an experiment conducted over the Internet on three continents and in classroom laboratory sessions conducted in Israel and Spain. Our design elicitsindividual behavior profiles over a range of contingencies, enabling us to identify heterogeneity among our participants. We find that many people show regard for others, even with the apparent social distance inherent with Internet interaction. Even in a virtual experiment, about 28% of the population demonstrate what appears to be positive reciprocity. The classroom laboratory sessions minimize (anonymous) social distance. While the rate of positive reciprocity is higher (43%) with less social distance, the patterns in behavior are surprisingly similar across treatments. To the extent that reciprocity could be a feature of virtual international business, perhaps cooperative behavior is sustainable.