The paper by Fehr and Schmidt explores the interplay between fairness, competition, and cooperation in economic decision-making. They argue that while people often exploit their bargaining power in competitive markets and free-riding opportunities in voluntary cooperation games, stable cooperation can be maintained when punishment is possible, despite the costs associated with it. The authors propose a model of *inequity aversion* to explain these behaviors, where individuals are willing to sacrifice some material payoff to achieve a more equitable distribution. This model suggests that the economic environment determines whether "fair" or "selfish" types dominate equilibrium behavior. In competitive environments, such as the ultimatum game and market games, the presence of inequity-averse individuals can be explained by the standard self-interest model, where competition among players nullifies the impact of fairness considerations. However, in cooperation games, the model predicts that cooperation can thrive under certain conditions, even when the selfish model predicts complete defection. The authors provide experimental evidence to support their model, showing that in the presence of punishment, cooperation can be maintained, and that the number of inequity-averse individuals can influence the prevalence of cooperative behavior. The paper concludes that the economic environment plays a crucial role in shaping the behavior of individuals, and that the interaction between fairness considerations and economic incentives can lead to complex and diverse outcomes.The paper by Fehr and Schmidt explores the interplay between fairness, competition, and cooperation in economic decision-making. They argue that while people often exploit their bargaining power in competitive markets and free-riding opportunities in voluntary cooperation games, stable cooperation can be maintained when punishment is possible, despite the costs associated with it. The authors propose a model of *inequity aversion* to explain these behaviors, where individuals are willing to sacrifice some material payoff to achieve a more equitable distribution. This model suggests that the economic environment determines whether "fair" or "selfish" types dominate equilibrium behavior. In competitive environments, such as the ultimatum game and market games, the presence of inequity-averse individuals can be explained by the standard self-interest model, where competition among players nullifies the impact of fairness considerations. However, in cooperation games, the model predicts that cooperation can thrive under certain conditions, even when the selfish model predicts complete defection. The authors provide experimental evidence to support their model, showing that in the presence of punishment, cooperation can be maintained, and that the number of inequity-averse individuals can influence the prevalence of cooperative behavior. The paper concludes that the economic environment plays a crucial role in shaping the behavior of individuals, and that the interaction between fairness considerations and economic incentives can lead to complex and diverse outcomes.