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enter image description hereThis is from page 274 of "Advances in Behavioural Economics" by Camerer, Rabin, Loewenstein. This chapter of the book is entitled "A theory about fairness, competition, and cooperation".

I have difficulty understanding parts of this equation. (see attachment). I would need an explanation of the equation in detail (I assume this book is designed for graduate students, as I am currently an undergrad). What do alpha and beta represent? What does monetary payoff mean exactly? Is it similar to game theory? Why is there a 0 in [xj-xi, 0]? And why is it 1/(n-1) and not n-1? This is very confusing for me, who has little mathematical background.

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    $\begingroup$ $\alpha_i$ and $\beta_i$ are coefficients related to how much an individual $i$ feels bad about being less wealthy or more wealthy than other people. $\max\{x_j-x_i,0\}$ is the difference between person $j$'s wealth and person $i$'s wealth if person $j$'s wealth is higher than person $i$'s wealth; otherwise it is $0$. The division by $n-1$ to get an average is because there are $n-1$ individuals apart from person $i$ for person $i$ to compare to. $\endgroup$
    – Henry
    Mar 20, 2020 at 13:05
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    $\begingroup$ @Henry: Your comment is actually an answer, and a correct one. Why don't you make it an answer? (Sorry, just curious.) $\endgroup$
    – VARulle
    Mar 23, 2020 at 15:50
  • $\begingroup$ @VARulle because sometimes I feel like commenting. You can use for an answer if you wish $\endgroup$
    – Henry
    Mar 23, 2020 at 16:07
  • $\begingroup$ @Henry: Thx for the offer, but I don't want to adorn myself with borrowed plumes. $\endgroup$
    – VARulle
    Mar 23, 2020 at 16:13

1 Answer 1

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As @Henry commented and according to https://meta.stackexchange.com/questions/117251/what-should-be-done-with-questions-that-have-been-self-resolved-as-a-comment-ins I made a community wiki with the answer:

αi and βi are coefficients related to how much an individual i feels bad about being less wealthy or more wealthy than other people. max{xj−xi,0} is the difference between person j's wealth and person i's wealth if person j's wealth is higher than person i's wealth; otherwise it is 0. The division by n−1 to get an average is because there are n−1 individuals apart from person i for person i to compare to.

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