case study of equity theory

Equity Theory (ET)

Equity theory: a review, introduction.

Table 1: Equity evaluation compared to referent others

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Dinara Davlembayeva (Business School, Cardiff University, UK) & Eleftherios Alamanos (Business School, Newcastle University, UK)

How to Cite

Davlembayeva, D.& Alamanos, E. (2023) Equity Theory: A review . In S. Papagiannidis (Ed), TheoryHub Book . Available at https://open.ncl.ac.uk / ISBN: 9781739604400

Theory Profile

Discipline Psychology Unit of Analysis Individual

Operationalised Quantitatively Level Micro-level

Theory Tags

ISBN: 978-1-7396044-0-0

Published under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License .

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• DOI: 10.5465/AMR.1978.4294844
• Corpus ID: 168100051

Equity Theory: The Recent Literature, Methodological Considerations, and New Directions

• Michael R. Carrell , J. Dittrich
• Published 1 April 1978
• Business, Sociology
• Academy of Management Review

426 Citations

A new perspective on equity theory: the equity sensitivity construct, equity theory and time: a reformulation, the impact of culture on equity sensitivity perceptions and organizational citizenship behavior: a five-country study, perceived communication inequity: a determinant of job dissatisfaction, a psychometric assessment of a scale to measure organizational fairness, the utility of equity theory in enhancing organizational effectiveness, test for individual perceptions of job equity: some preliminary findings, perceptions of the measurability, importance and effects of work equity on job satisfaction and work motivation: an exploratory study of the utility of equity theory, a theory of equitable performance standards, organizational justice and the inclusion of lgbt federal employees: a quasi-experimental analysis using coarsened exact matching, 48 references, equity theory: a review and critique., an examination of adams' theory of inequity, test of equity theory by controlling for comparison co-workers' efforts, equity theory revisited: comments and annotated bibliography, towards an understanding of inequity, new directions in equity research., wage inequity, self-qualifications, and productivity, inequity in social exchange, the relationship of inequity to turnover among hourly workers, inequity reduction over time in an induced overpayment situation, related papers.

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Equity Theory Ratios as Causal Schemas

Alexios arvanitis.

1 Department of Psychology, University of Crete, Rethymnon, Greece

Alexandra Hantzi

2 Department of Psychology, Panteion University, Athens, Greece

Associated Data

Equity theory approaches justice evaluations based on ratios of exchange inputs to exchange outcomes. Situations are evaluated as just if ratios are equal and unjust if unequal. We suggest that equity ratios serve a more fundamental cognitive function than the evaluation of justice. More particularly, we propose that they serve as causal schemas for exchange outcomes, that is, they assist in determining whether certain outcomes are caused by inputs of other people in the context of an exchange process. Equality or inequality of ratios in this sense points to an exchange process. Indeed, Study 1 shows that different exchange situations, such as disproportional or balanced proportional situations, create perceptions of give-and-take on the basis of equity ratios. Study 2 shows that perceptions of justice are based more on communicatively accepted rules of interaction than equity-based evaluations, thereby offering a distinction between an attribution and an evaluation cognitive process for exchange outcomes.

Introduction

Equity theory was introduced in the study of organizational settings to examine justice in the workplace environment ( Adams, 1963 ), but was soon formulated as a general theory of interpersonal relationships ( Walster et al., 1973 ) that treats social interaction as an exchange of resources among actors. It is part of a broader set of social exchange theories, which have been extensively applied in understanding workplace behavior, although their concepts are not strictly defined and articulated ( Cropanzano and Mitchell, 2005 ).

Equity theory specifically argues that resources should be used in a way so that inputs and outcomes of an exchange process are proportional. In this sense, equity ratios (which can be perceived as ratios of outcomes to inputs or vice versa) should be equal. The main reasoning behind this is that rational people would accept no other arrangement in their effort to maximize outcomes and manage their resources effectively (see Walster et al., 1973 ). In fact, equity theory is strongly based on the instrumental rationality postulate and essentially argues that inputs and outcomes are the main determinants of the evaluation process of an exchange as just or unjust.

It is not necessary, though, to view rationality only in terms of the effectiveness of goal-directed actions and, therefore, the effective use of exchange participants’ resources; rationality can be treated more broadly in terms of the ability of exchange participants to reach a common understanding about their shared ‘lifeworld’ (see Habermas, 1985 ). In short, whatever brings about an agreement that is communicatively achieved can serve as a criterion for the evaluation of an exchange situation.

In this sense, equity ratios may indeed include necessary elements of any exchange process –inputs and outcomes– but they do not have a hidden property of ‘compulsory’ equality. In fact, they can be treated as cognitive elements of a causal schema that processes how exchange outcomes are linked to exchange inputs. This causal schema could be derived from an implicit knowledge about the structure of the world, or more specifically about the nature of social interaction ( Kelley, 1973 ).

Our purpose is to examine whether equity ratios in essence illustrate a relationship between cause and effect which is necessary to the cognitive process of the attribution of exchange outcomes, rather than to the cognitive process of the evaluation of the exchange; the latter process would serve the purpose of establishing the appropriate norm to the effected exchange and would often go beyond equity considerations. We will further examine, consistent with the communicative rationality view of Habermas (1985) , whether justice is evaluated in terms of the rules that can elicit agreement of exchange participants.

Equity Ratios and Attribution of Outcomes

Attribution theory is concerned with the way in which people answer causal questions, i.e., questions beginning with ‘why.’ Originating in Heider’s conception of people as causal ‘origins’ ( Heider, 1944 ), attribution theory has offered valuable insight into how people are able to attribute actions to internal dispositions of actors ( Jones and Davis, 1965 ) or derive their own attitudes from observing their own actions ( Bem, 1967 ). Research in this field has remained diverse and its boundaries have never really been formalized ( Weiner, 2008 ). Few in this field, however, would argue against Heider (1958) who treated people as naive scientists that adopt principles to produce cause-effect relationships in a similar manner that a scientific system is formulated. At the same time it is accepted that on a more practical level, people often employ causal schemas, that is, abstract ideas about the nature of causal factors, since they lack the motivation, the time, or the knowledge to make proper scientific evaluations ( Kelley, 1973 ).

Our research is not the first to examine equity and attribution with regard to exchange outcomes. Hegtvedt et al. (1993) studied the ways in which perceived equity was associated with the attribution of outcomes to the self or the other. They found that the greater the perception of equity, the greater the attribution of outcomes to the self. However, they did not propose a cognitive mechanism for how equity is linked to the attributions, or when people view such a situation as an exchange. To our knowledge, there has been no explicit reference regarding if and how equity ratios can be considered causal schemas for exchange outcomes.

In a two–party interaction between A and B, one way the equity postulate can be portrayed is the following:

One of the problems that have been identified in equity theory is that inputs and outcomes are often difficult to distinguish empirically ( Cook and Parcel, 1977 ). Our proposal is to treat equity theory ratios as causal schemas where inputs are causes and outcomes are effects. A’s and B’s actions (inputs) can influence both actors’ outcomes (see Figure ​ Figure1 1 , where causal relationships are illustrated by the use of arrows). If there is no other factor (such as other actors, chance etc.) that influences the actors’ outcomes, any disproportionality in inputs and outcomes of one actor first of all implies that one actor has influenced the other. If we limit our analysis to positive influence, i.e., the use of positive resources, an unfavorable disproportionality to A (A’s outcomes/A’s inputs < B’s outcomes/B’s inputs) means that A has used resources in favor of B’s outcomes. In this sense A has ‘given,’ B has ‘received’ and an exchange has taken place. Perceptions of ‘receiving’ essentially describe a cause-effect relationship between one’s outcome and another person’s input and are the result of the attribution process of one’s outcome to another person’s input.

The attribution of exchange outcomes in a two-party interaction .

The above reasoning may be clarified through an example. Let us for a moment assume that there is no exchange and A performs a simple goal-directed action: She is making pancakes. Inputs include her effort, the cost of the ingredients, and the use of the oven, while the outcome includes the quality and quantity of the pancakes that A consumes. Without B, outcomes can only be attributed to A’s inputs (illustrated by the arrow from A’s inputs to A’s outcomes, in Figure ​ Figure1 1 ). Now, if B comes into the picture, he may eat part of the pancakes without offering any input or very little. This is an example of a disproportional situation, where B receives from A (illustrated by the arrow from A’s inputs to B’s outcomes), since the pancakes he eats are attributed to A’s inputs. The less inputs B provides and the more outcomes he reaps, the greatest the disproportionality and the perception of B’s receiving. On the other hand, B can sit in the same kitchen, make his own pancakes and consume only the pancakes he made (illustrated by the arrow from B’s inputs to B’s outcomes). In this case, the outcomes of A can only be attributed to the inputs of A and the outcomes of B to the inputs of B. This would be a proportional situation where no real exchange has taken place. B can also share his ingredients with A, collaborate with A and in the end share the pancakes in a proportional manner. From the bulk of pancakes that both A and B made, we can attribute the existence of some pancakes to A and some to B, depending on the amount of their inputs, and deduce who has received from the other or, in general, whether an exchange has taken place.

The causal schema for a high outcome for A may be depicted in the more familiar form of a compensatory cause schema ( Kelley, 1972 , 1973 ), where two quantitatively graded causes contribute to the effect ( Figure ​ Figure2 2 ). The inputs of A and B contribute to the final high outcome of A. However, only when the input of B is low can we deduce that the cause of the high outcome for A is A’s high input (indicated by the solid arrow). In the cases of high or medium input of B, one cannot easily infer the extent that the input of A contributed to the final high outcome (indicated by the dotted arrows). Unless, that is, one knows more about the outcome of B. The case of exchange is too complicated to be depicted in a two-dimensional causal schema because it is not only the inputs that are taken into account, but also the outcomes of both parties. A straightforward way to portray this type of schema is to resort to Figure ​ Figure1 1 or the equity ratios themselves.

Causal schema for compensatory causes in the form of Kelley (1973) . (E = high outcomes for A).

It is also important to note that the current analysis is presented with slight but important differences compared to mainstream attribution analyses. Most psychological research is based on the dichotomy between internal and external attribution ( Hewstone, 1989 ), often failing to distinguish among the different social objects: task, self, other, social unit ( Lawler, 2001 ). The social unit can be an exchange relationship, a network, or group. Indeed an exchange relationship may offer an attractive explanation for an outcome ( Eberly et al., 2011 ). Understanding how and when people attribute outcomes to the other person in the context of an exchange relationship offers a more fine-grained explanation than the one offered by the usual internal-external dichotomy. Our reasoning and measures concerning attribution have been developed mostly to reflect an inter-individual or dyadic level of analysis ( Krasikova and LeBreton, 2012 ; Tse and Ashkanasy, 2015 ) than the usual intra-individual level of analysis (for more about levels of analyses in social psychology see Doise, 1980 ).

On a dyadic level, interactions are often assumed to be exchanges of resources such as love, information, or money ( Foa and Foa, 1974 ) but the case in which people actually treat interactions as exchanges is rarely examined. Our proposed approach rests on a fundamental assumption: People can attribute outcomes to actions and to resources of their own and/or those of other people. When they perceive that it is not only their own actions or their own resources (their own inputs) that influence their outcomes, they partly attribute their outcomes to the inputs of other people. In this case, they perceive that they ‘receive.’ The ratios of equity theory implicitly point to an attribution process, and yet have not been used and tested in such a way explicitly. Proportionality or disproportionality (i.e., equal or unequal ratios) may contribute to our understanding of how individuals exchange resources once we take into account the attribution process concerning resources and outcomes.

Should there be proportionality though (i.e., is proportionality an imperative) as equity theory argues? The ‘ought’ element is not an inherent property of equity theory ratios themselves. With no other criterion to judge an interaction, the simplest rule to use for evaluation would be that of “giving to every man his own” ( Hobbes, 1996 , p. 96). However, the above-mentioned rule of interaction may not be the only one involved.

Equity, Justice, and Agreement

Equity rules are but few of a broader set of possible distributional rules that are used to evaluate justice. Concerning the final distribution of outcomes, Deutsch (1975) argued that there are eleven different allocation rules that may lead to a fair outcome. These rules could be classified under three main categories: equity rules, equality rules, and need-based rules. Therefore, a result can be distributively fair if (a) outcomes are taken into account and found equal, (b) inputs are also taken into account and the ratios suggested by equity theory are found equal, or (c) needs are added in the equation and satisfied in a proportional manner. A different focus was introduced through Thibaut and Walker’s (1975 , 1978 ) seminal work on the control that the disputants have on the legal procedure. Emphasis was placed on the fairness of the procedure and not necessarily that of the outcome and, thus, the concept of procedural justice was distinguished clearly from the concept of distributive justice. Another distinct concept is that of interactional justice (see Bies and Moag, 1986 ) that focuses on the relationship of the parties and not on the outcome or the procedure. More recently, Folger (2001) argued in favor of the concept of deontic justice since earlier conceptions “ ignore principled moral obligations and instead substitute personal desires as reasons for acting fairly or responding negatively to injustice ” ( Cropanzano et al., 2003 , p. 1019).

So many are the possible rules and norms that are used to evaluate justice that it seems legitimate to argue that any type of rule can serve as a criterion for evaluating justice. For example, disproportional outcomes may be judged fairer in the context of positive relational ties ( Sherf and Venkataramani, 2015 ) or in case exchange participants are able to exercise autonomy in their task decisions ( Cropanzano and Folger, 1989 ). At the same time, people may evaluate justice on the basis of the information that they receive first ( Van den Bos et al., 1997 ). Cross-cultural considerations, such as individualism-collectivism, may also play an important role in justice evaluations ( Chen et al., 1998 ).

Jasso (1980 , 2005 ) goes beyond equity theory and offers a comprehensive justice analysis on the basis of a referential standard, the “just share,” which may be based on an aggregate set of comparisons, comparison with a group, or comparison with an abstract standard or principle. Hegtvedt and Johnson (2000) point out that equity theory assumes a single rule as legitimate without considering different aspects of legitimation. According to them, justice research should focus less on comparisons between the ratio of outcomes to inputs of a person and the ratio of another person; it should focus more on the person’s assessment of the fairness of that ratio and what other people assess as fair. However, their research does not necessarily reject the ‘instrumental rationality’ framework of classic equity theorists (see Hegtvedt et al., 2003 ).

Habermas (1985) offers a conception of rationality, namely communicative rationality, which is quite different to the self-interested instrumental rationality that equity theory accepts. In his work on morality ( Habermas, 1991 ), he argues that ‘ought’ is established within reasoned discussion and by means of agreement. The evaluation of rules, or normative rightness in general, as well as the obligation to uphold rules can be approached on the basis of the rules’ potential validity in the context of reasoned discussion among members of an exchange relationship. It is useful to point out that empirical research can approach justice evaluations on the basis of agreement among participants in a discussion ( Kahn et al., 1982 ). Heider (1958) also proposes that ‘ought’ is shared by all people in a particular situation, has intersubjective validity, and, moreover: “ people should concur in its directives ” ( Heider, 1958 , p. 222). This type of intersubjective validity often goes beyond the particular context, stands the test of a universal audience ( Perelman and Olbrechts-Tyteca, 1958 ) and is supported by reasons that establish the rightness of norms during discourse ( Habermas, 1991 ). Furthermore, every negotiation regarding an exchange can be viewed as an intersubjective process that validates the rights of negotiating parties ( Arvanitis and Karampatzos, 2013 ), through the central role of agreement ( Arvanitis, 2015 ). Therefore, inputs and outcomes do not necessarily determine the way in which justice is evaluated, since the evaluation is based on the rules that elicit agreement during discourse (rules that can go beyond equity).

The role of agreement has also been stressed in the realms of another social exchange theory, psychological contract theory ( Rousseau, 1995 ). Psychological contract theory accepts that it is agreement that creates obligations to uphold certain norms, although people may fail to share the same understanding concerning the terms of the exchange ( Dabos and Rousseau, 2004 ). In fact, psychological contract theory primarily investigates divergence of beliefs concerning the terms of interaction, studying, among others, how breach of a psychological contract is associated with feelings of violation ( Robinson and Morrison, 2000 ). The appropriateness of a norm regarding an exchange is often established on the basis of a synthesis of different and contradicting perceptions. Habermas (1985 , 1991 ) argues that such synthesis is accomplished by means of agreement during reasoned discussion.

Attribution and Evaluation in Exchange: Two Distinct Cognitive Processes

Kelley and Michela (1980) made a crude distinction between attribution and “attributional” research. Attribution research examines or involves the manipulation of the antecedents of attributions, but is not interested in consequences beyond the attributions themselves. On the other hand, attributional research focuses more on the consequences of attribution in areas such as achievement or romantic love. What we find most interesting about this distinction is the attempt to dissociate the qualities of the attribution process itself from its consequences. This is exactly what we intend to do in the context of this research. Inputs and outcomes will initially be manipulated to understand how they contribute to attributions of outcomes and further evaluation will be treated as a separate cognitive process, an “attributional” process regarding the evaluation of fairness. Our research relies on minimal context in order to examine basic reasoning processes.

Study 1: When Do People Perceive A Situation As Exchange?

The primary purpose of Study 1 is to examine whether people perceive each other’s influence as exchange, or more simply put, as give-and-take. More specifically, we will examine whether equity theory ratios accurately reflect the attribution of outcomes and provide the basis of perceptions of receiving in interdependent situations. We will further examine perceptions of justice to see how people evaluate the situation, since equity theory holds an eminent position in the justice literature. However, we will not include any aspect of communication between the hypothetical dyad of exchange participants.

Our general hypotheses concerning participants’ perceptions in a two-party interaction are derived from a simple analysis of Figure ​ Figure1 1 . Just by looking at the amount of inputs and outcomes of A and B and without further knowledge of their interaction (as well as the presence of any third factors) we would hypothesize that counterparts will be perceived either to have cooperated and proceeded with an exchange or to have proceeded individually on their own if inputs and outcomes were proportional. The case for cooperation would be more evident in the case that A and B contributed equally and had an equal share of the outcomes, because this type of situation would likely be the product of some sort of intentional exchange between A and B, instead of being some type of coincidence. The role of intentions in attribution processes has been repeatedly stressed in attribution theories, especially correspondent inference theory ( Jones and Davis, 1965 ). Otherwise, a disproportional situation will lead to the perception (as long as a third factor is non-existent) that A has received from B or the opposite. Moreover, in the absence of any information concerning the normative rightness of potential rules, proportional situations will be perceived as fair, whereas disproportional situations as unfair.

Therefore, in proportional situations, counterparts would be perceived to receive equally from each other (Hypothesis 1A). As long as there is no other rule governing the interaction, the situation will be deemed just in cases of proportionality (Hypothesis 1B). In cases of disproportionality though, one person will be perceived to receive from the other in a way consistent with the direction and the size of the disproportionality (Hypothesis 2A). As long as there is no other rule governing the interaction, the situation will be deemed unjust in cases of disproportionality (Hypothesis 2B).

Participants and Design

Fifty four (18.52% males) undergraduate psychology students voluntarily participated in this study. Participants were between 18 and 25 years old with a mean age of 19.57 years old ( SD = 1.07), all Caucasian. A 3 (balance of outcomes: balanced– A = B , imbalanced favorable to A– A > B , imbalanced favorable to B– A < B ) × 3 (balance of inputs: balanced– A = B , imbalanced favorable to A– A < B , imbalanced favorable to B– A > B ) within-subjects design was employed. The structure of the design (depicted in Table ​ Table1 1 ) was such that three of the resultant conditions exemplified proportionality (either balanced or imbalanced with reference to A or B) and six exemplified disproportionality (four reflected mild disproportionality due to imbalance in inputs or outcomes, and two reflected strong disproportionality).

Design of study 1.

Procedure and Materials

Participants were informed of the general purpose of the study and gave written consent, in line with the WMA declaration of Helsinki. No deception concerning the purpose of the study was necessary. As the stories used in this study involved the evaluation of hypothetical third-party interactions, we anticipated minimal emotional involvement on the part of participants. The procedure was approved by the supervisory committee of the Ph.D. thesis of the first author. After completion, participants were thoroughly debriefed and excused.

Participants were given a booklet containing nine short hypothetical scenarios. The basic scenario depicted A and B as business partners, and also presented their contribution to the company and their share of the profits. The scenario simply read “A and B are the sole partners in a company. The course of the company is entirely in their hands. The contribution of each to the company and the share of the profits of each are as follows:” Two bar graphs followed that showed A’s and B’s relative contribution to the company and their corresponding share of profits. The stories were minimal and were pilot tested in a small sample of university students to check comprehension and potential involvement. A short introductory page stressed that the information given would be limited, but encouraged participants to imagine such exchange situations and estimate the level of receiving for the hypothetical exchange dyad. Nine variations of the same story – which appeared randomly within a nine-page questionnaire – reflected the nine conditions of proportionality and disproportionality (see Table ​ Table1 1 ). Each scenario was followed by items designed to obtain measures for receiving (two short straightforward items that tapped into the perception of exchange abstractly: “ I think that A ‘received’ from B ,” “ I think that B ‘received’ from A ”) and one item to measure a general sense of justice of the situation (“ I think that the situation is just ”). Similar items were considered and dropped after the pilot study, after exhibiting very high correlations with the ones chosen, in an effort to minimize participant fatigue. Participants used a 7-point scale to indicate their agreement or disagreement with the items (7 for strong agreement , 1 for strong disagreement ).

We performed two separate analyses designed to test our hypotheses concerning the effects of proportionality (Hypothesis 1A) and disproportionality (Hypothesis 2A) on perceptions of receiving.

Proportionality

We performed a 3 (proportionality balance: balanced proportionality- BP, imbalanced proportionality with reference to A-IPa, imbalanced proportionality with reference to B-IPb) × 2 (receiving A vs. B: A’s receiving from B, B’s receiving from A) within-subjects ANOVA ( Table ​ Table2 2 ). The main effect for ‘receiving A vs. B’ [ F (1,53) < 1] and the two-way interaction were not significant [ F (1,53) < 1], which indicates that there was no difference between A’s receiving and B’s receiving, a finding in support of Hypothesis 1A stating that in cases of proportionality counterparts would be perceived to receive equally from each other. However, there was a significant main effect of proportionality balance, F (2,106) = 35.30, p < 0.001, η p 2 = 0.40; post hoc comparisons showed that perceptions of receiving were significantly higher for Balanced Proportionality ( M = 4.98) than those for either condition of Imbalanced Proportionality ( M = 3.54, p < 0.001; M = 3.53, p < 0.001). The difference between the latter IP conditions (IPa vs. IPb) was on average not significant. In other words, participants perceive that A and B receive from each other in BP whereas they do not have the same conviction in IP situations. In fact, one-sample t -tests revealed that the mean for BP (4.98) was significantly higher ( p < 0.001) than the midpoint of the scale (4), indicating perceptions of receiving, while both means for IP (3.54; 3.53) were significantly lower ( p < 0.05) than the midpoint of the scale (4), indicating that participants would tend to disagree that A or B received from each other. In other words, it can be argued that participants did not perceive the situation as one of exchange in the IP situation. The present findings allude to the fact that BP situations are perceived as exchanges whereas IP situations may not even be perceived as exchanges.

Means (M) and standard deviations (SD) of receiving in conditions of proportionality.

Disproportionality

Given our Hypothesis 2A that disproportionality (i.e., conditions of either outcomes or inputs imbalance) lead to perceptions of unequal receiving from each other, reflecting the direction and the size of the disproportionality, it was thought most appropriate to calculate difference scores (measures of A’s receiving from B minus B’s receiving from A, for disproportionality favorable to A, and vice versa for disproportionality favorable to B) as more accurate reflections of who actually receives and to what extent. We performed a 3 (level of disproportionality: Strong Disproportionality-SD, Mild Disproportionality due to inputs-MDi, Mild Disproportionality due to outcomes-MDo) × 2 (Disproportionality favorable to: A or B) within-subjects ANOVA, on these difference scores ( Table ​ Table3 3 ).

Means (M) and standard deviations (SD) of difference scores of receiving in conditions of disproportionality.

There was a main effect of level of disproportionality, F (2,106) = 7.08, p < 0.001, η p 2 = 0.12; post hoc comparisons showed that perceptions of receiving were significantly higher for SD ( M = 3.88) than those for either the condition of MD due to imbalance in inputs ( M = 3.15, p < 0.001) or the condition of MD due to imbalance in outcomes ( M = 2.97, p < 0.001) 1 . The difference between the latter two conditions was not significant. This finding supports Hypothesis 2A which states that in cases of disproportionality parties are perceived to receive in a way consistent with the direction and the size of the disproportionality since this perception is stronger in conditions of SD than in conditions of MD.

Justice of the Situation

We performed two separate analyses designed to test our hypotheses concerning the effects of proportionality (Hypothesis 1B) and disproportionality (Hypothesis 2B) on perceptions of justice.

A within-subjects one-way ANOVA (proportionality balance: balanced proportionality-BP, imbalanced proportionality with reference to A-IPa, imbalanced proportionality with reference to B-IPb) was performed ( Table ​ Table4 4 ). The effect of level of proportionality on perceptions of justice was significant, F (2,106) = 13.40, p < 0.001, η p 2 = 0.95. Perceptions of justice were significantly higher in the condition of BP ( p < 0.001), than in either of the IP conditions, which did not differ significantly. One-sample t -tests revealed that all three means were significantly higher ( p < 0.001) than the midpoint of the scale (4) indicating strong perceptions of justice. These findings are in line with Hypothesis 1B stating that in cases of proportionality the situation will be deemed just; however, in BP the situation is deemed more just than in IP.

Means (M) and standard deviations (SD) of justice in conditions of proportionality.

We performed a 3 (level of disproportionality: Strong Disproportionality-SD, Mild Disproportionality due to inputs-MDi, Mild Disproportionality due to outcomes-MDo) × 2 (Disproportionality favorable to: A or B) within-subjects ANOVA, on perceptions of justice ( Table ​ Table5 5 ). There was only a significant main effect of level of disproportionality, F (2,106) = 10.00, p < 0.001, η p 2 = 0.34; post hoc comparisons showed that perceptions of justice were significantly higher for MD due to imbalance in inputs ( M = 2.13) than those for either the condition of MD due to imbalance in outcomes ( M = 1.84, p < 0.05) or the condition of SD ( M = 1.60, p < 0.001). The difference between the latter two conditions was not significant. The theoretical explanation for this finding is that in cases of disproportionality, equality in outcomes (as is the case in MDi) renders the situation less unjust than other disproportional situations. In all cases of disproportionality, however, the situation was deemed unjust, since one-sample t -tests revealed that all three means were significantly lower ( p < 0.001) than the midpoint of the scale (4), thus indicating perceptions of injustice, a finding consistent with Hypothesis 2B.

Means (M) and standard deviations (SD) of justice in conditions of disproportionality.

In study 1 we examined the effect of inputs and outcomes on perceptions of receiving and justice in order to test our hypotheses, which were formulated along the lines of equity theory. Our main rationale was that equity theory ratios would serve as the basis of perceptions of receiving – thereby revealing the underlying attribution process of outcomes to inputs–, as well as influence perceptions of justice in the absence of any other information regarding the communication between the hypothetical actors.

In conditions of balanced proportionality (i.e., inputs and outcomes are equal) the perceptions of receiving and justice are high. In conditions of imbalanced proportionality (imbalance both in inputs and outcomes that cancels out), it seems as if it were “every man for himself.” No one is really perceived to receive from the other and this absence of influence is deemed fair. We can argue that a proportional interdependent situation will be perceived as exchange when it is balanced, probably because balanced situations require coordination and some type of exchange in order to be achieved. Otherwise, the situation might not even be perceived as exchange, as outcomes will not be attributed to inputs of other individuals. Moreover, and as we expected on the basis of equity theory, proportional situations are generally perceived as fair. However, it is notable that perceptions of justice are higher when exchange is perceived to have taken place, as exemplified in the balanced proportionality condition.

The results for disproportionality are a little less straight forward. There is definitely a sense of receiving in dispro portionality and it gets more intense as the disproportionality gets stronger. This is consistent with expectations based on equity ratios (Hypothesis 2A). Moreover, it is definitely perceived as unjust for one party to receive more than the other (thereby supporting Hypothesis 2B). However, perceptions of justice do not follow the same pattern as that detected for receiving since stronger disproportionality did not lead to higher perceptions of injustice, which means that the level of perceived injustice is not based adequately on equity theory ratios. In this case, the most plausible explanation is that equality (i.e., balance in outcomes) rather than equity was more salient in participants’ responses concerning the level of injustice in conditions of disproportionality.

We have demonstrated that equity ratios are consistent with perceptions of who receives more in a relationship; they appear to serve as causal schemas, as indicated by the overall support of our hypotheses. Judgment or evaluation of the exchange, as a separate cognitive process, could on the other hand be the result of the application of any rule or norm (in this case it involved both an equity and an equality rule). The examination of this issue is one of the primary aims of study 2.

Study 2: Are Inputs and Outcomes the Only Factor in the Evaluation Process?

The purpose of study 2 is twofold: To replicate the findings of study 1 concerning disproportionality across three types of interaction situations and further to examine if equity ratios serve more as causal schemas of exchange than instruments of justice evaluations. Our goal is to show that apart from the cognitive process of attribution of outcomes, there is another cognitive process that is responsible for the evaluation of the situation as just, one that might not be captured at all by equity theory. We propose that in cases of disproportionality, although the favored person is perceived as having received, this is not necessarily seen as unjust. We have already argued that the evaluation process might involve the application of a rule or norm that is agreed upon during reasoned communication. Thus, a disproportional situation might be seen as just if there is a communicatively rational rule pointing in that direction or, more particularly, a reason for this disproportionality that is validated by the agreement of the parties involved (a rule that is reciprocally accepted by parties). More specifically, we hypothesize that: In disproportional situations, irrespective of input-outcome structure or the existence of agreement, the favored party is perceived as having received (Hypothesis 3) but, disproportionality will not be seen as unjust if it is rationally agreed upon through reasoned communication (Hypothesis 4).

Sixty undergraduate psychology students voluntarily participated in this study. The sample consisted of 16.6% males and 83.3% females. Participants were between 18 and 38 years old with a mean age of 20 years old ( SD = 2.96), while all of them were Caucasian. A 3 (games: chicken, prisoners’ dilemma, assurance) × 2 (communication: no-agreement, agreement) within-subjects design was used.

Participants gave written consent after being informed of the general purpose of the study, in line with the WMA declaration of Helsinki. As in Study 1, no deception was employed and minimal emotional involvement on the part of participants was expected. The procedure was approved by the supervisory committee of the Ph.D. thesis of the first author.

Participants were given a booklet containing three versions of the story of A and B who are business partners, a story quite similar to the one used in study 1. The three versions of the story (variations involved the existence of a bonus or not, the amount of work, the level of pay) reflected the utility structure of three types of games, very common in game theory research literature – chicken, prisoner’s dilemma, assurance ( Poundstone, 1992 ). The prisoner’s dilemma concerns two prisoners offered a Faustian bargain by the police to testify against each other and go free. Game theory predicts that rational pursuit of self-interest would result in both prisoners backstabbing each other (i.e., “defecting” instead of “cooperating”). Chicken, otherwise known as hawk-dove, is modeled after the teenage game of highway chicken where two drivers set their vehicles on collision course and the first one who swerves, loses. In this case, the rational solution is not where both players defect, for that outcome will result in their death; the rational solution is where one player swerves (or “cooperates”) and the other drives straight (or “defects”). Assurance, otherwise known as stag hunt, trust dilemma or cooperation game, is not a real dilemma at all. All parties prefer to cooperate and hunt a stag but the possibility that someone might defect does not make catching the stag a certainty. In this case, lack of trust or miscommunication might make someone hunt a hare (i.e., “defect”) than hunt the stag (i.e., “cooperate”).

These games were chosen to illustrate different input-outcome structures, which were presented by emphasizing A’s and B’s structure of preferences (see Appendix), and to test whether different strategies within each scenario would influence perceptions of receiving or justice. The three games were presented to participants in the aforementioned order. In both prisoner’s dilemma and chicken, A and B (the characters in the story) have an interest in deviating from a situation in which they both work a lot (i.e., the situation in which they “cooperate”). Only in the assurance game, the situation in which they both work a lot is one they would not want to deviate from. After receiving information on each version of the story, participants were told that the eventual outcome of the story was a disproportional one (favorable to B) in all three cases. Each version was followed by items designed to obtain measures for receiving (“ I think that B ‘received’ from A ”) and justice (“ I think that the situation is unjust ”). Participants used a 7-point scale to indicate their agreement or disagreement with the items (7 for strong agreement , 1 for strong disagreement ). Participants responded to the same items under two conditions: Under the premise that there is agreement that allowed for the disproportionality for reasons regarding the personal relationship of A and B (agreement condition) and under no such premise (no-agreement condition). The agreement condition followed the no-agreement condition – which essentially served as the control – for each of the three games. It should be stressed that in the agreement condition the story simply stated that the outcome was due to “their agreement, supported by reasons that had to do with their personal relationship” without mentioning what those reasons could have been . In this way we made agreement salient without mentioning what it might have entailed, although noting that it was supported in the context of their interaction 2 .

Given the directional nature of the hypotheses, the relevant tests are presented first, followed by further analysis using a three (games: chicken, prisoners’ dilemma, assurance) × 2 (communication: no-agreement, agreement) within subjects ANOVA ( Table ​ Table6 6 ).

Means (M) and standard deviations (SD) of B’s receiving and injustice.

One-sample t -tests revealed that, in all six conditions, means for perceptions of B’s receiving were significantly higher ( p < 0.001) than the midpoint of the scale (4), indicating that participants in all conditions perceived that the favored party B did receive from A. These findings are consistent with Hypothesis 3. The ANOVA on perceptions of B’s receiving revealed a significant main effect of games, F (2,118) = 5.98, p < 0.01, η p 2 = 0.09 and a significant main effect of communication, F (1,59) = 8.11, p < 0.01, η p 2 = 0.12. However, these main effects were qualified by a significant games × communication interaction, F (2,118) = 4.93, p < 0.01, η p 2 = 0.08. The breakdown of this interaction revealed the following: In the no-agreement condition, perceptions of B’s receiving in the assurance game condition ( M = 4.78) were significantly lower than those in both other conditions ( M = 5.38, p < 0.001 for prisoners’ dilemma; M = 5.30, p < 0.01 for chicken), while the latter two conditions did not differ significantly; this game effect was not significant in the agreement condition. It appears that perceptions of B’s receiving did not differ across games when there was agreement on the disproportionality, while they were higher in the prisoners’ dilemma and chicken conditions when no agreement was mentioned. On the whole, these findings lend further support to the findings of study 1 concerning perceptions of receiving in cases of disproportionality.

One-sample t -tests revealed that, in the agreement condition, means for perceptions of injustice for all three games were significantly lower ( p < 0.001) than the midpoint of the scale (4), indicating low perceptions of injustice. These results are consistent with Hypothesis 4. The ANOVA on perceptions of injustice revealed a significant main effect of games, F (2,118) = 3.24, p < 0.05, η p 2 = 0.05 and a significant main effect of communication, F (1,59) = 72.99, p < 0.001, η p 2 = 0.55 showing that perceptions of injustice in the no-agreement condition ( M = 5.05) were significantly higher than in the agreement condition ( M = 3.35). However, these main effects were qualified by a significant games × communication interaction, F (2,118) = 6.69, p < 0.01, η p 2 = 0.10. The breakdown of this interaction revealed the following: in the no-agreement condition, perceptions of injustice for the assurance game ( M = 4.66) were significantly lower than those in both conditions of prisoners’ dilemma ( M = 5.25, p < 0.01) and chicken ( M = 5.23, p < 0.01), while the latter two conditions did not differ significantly. In the agreement condition this game effect was not significant.

To sum up, it appears that perceptions of injustice differ across the communication conditions. Once there is agreement (a reciprocally accepted rule) on the disproportionality, the situation is no longer seen as unjust (although it is perceived that B still receives from A, as we saw in the analysis of receiving). It is worth noting, however, that in the no-agreement condition, perceptions of injustice are lower in the assurance game (which is consistent with the perception that B receives less in the assurance game), a finding which will be further discussed.

In study 2 we examined participants’ perceptions of receiving and injustice for a disproportional outcome in an interdependent situation across three types of games and under two conditions of agreement and no-agreement on this disproportionality. In the case of the existence of agreement within the relationship, disproportionality was not seen as unjust across all three types of games. This runs counter to equity-based expectations concerning perceptions of justice. At the same time, perceptions of receiving were in line with equity-based expectations about attributions and were the same across all three types of games. In other words, it can be argued that individuals use equity ratios to attribute outcomes and understand patterns of receiving but use norms and terms that evoke rational agreement in order to understand justice.

Although our purpose was to distinguish between agreement (as the only factor affecting perceptions of justice) and the structure of inputs-outcomes (as the only factor affecting perceptions of receiving), we have to acknowledge that there is a relationship between perceptions of receiving and perceptions of agreement, as operationalized, measured and tested in the above study. The interaction between agreement and input-outcome structures shows that agreement can be treated as the main objective of communicative rationality mechanisms (as we intended) but can also be treated as something you give or take from other people, just like a promise or a favor or indeed, any type of resource. This would account for the finding that, where explicit agreement was absent (no agreement condition), perceptions of receiving were higher in games (Prisoners’ Dilemma and Chicken Game) where hypothetical actors appeared to consciously deviate from implicit agreements of “cooperation”–thus receiving more from their exchange counterparts-. In the assurance game though, where each of the hypothetical actors had no way of knowing what the other would do and thus there was no hint of implicit agreement that was “violated,” perceptions of receiving were lower. This is useful to point out since treating agreement in this way is equivalent to considering agreement as another type of resource that weighs in with regard to attribution processes rather than treating it as the ultimate criterion for the appropriateness of norms and justice considerations.

Despite small differences in perceptions of receiving, disproportionality does create perceptions of receiving across all types of games and conditions of agreement . From then on, perceptions of justice may be based on the usual type of rules: that of “giving to every man his own” ( Hobbes, 1996 , p. 96). This is the exact pattern that we saw in the no-agreement condition. On the other hand, perceptions of justice can be based on reasoning such as “Elderly people should receive more” or “Women should be paid less” ( Moore, 2006 ) or, indeed, on any rules that can be supported in reasoned discussion, even if they point toward disproportionality and inequity. Equity theory alone cannot account for perceptions of justice – and consequently, for the findings in the agreement condition. It is evident that in study 2, an explicitly reciprocally accepted rule influenced perceptions of justice substantially . Moreover, these basic conclusions seem to generalize across all types of interactions (illustrated in this study by the different types of games). This means that independent of the utility structure of any interaction, people will perceive the direction of the give-and-take on the basis of the attribution of outcomes but will judge what is just or not, according to the potential communicatively rational agreement on the rules they see relevant. The present findings seem to provide initial support for our contention that there are two distinct cognitive processes in social exchange: one concerning the attribution of outcomes and another pertaining to the evaluation of the situation.

General Discussion

Social exchange theory can study how people affect each other by the use of their resources, which can broadly be defined as behavioral capabilities ( Emerson, 1981 ), and in this way explain a wealth of social psychological phenomena, especially in the organizational context where behavior is often treated as part of an exchange process. In this paper we have demonstrated that situations of interdependence can often be perceived as give-and-take situations. On the basis of a causal schema that treats inputs as causes and outcomes as effects, we proposed that people attribute outcomes of a social interaction either to their own or to other people’s inputs and further argued that, when they attribute outcomes to the inputs of other people, they treat an interaction as exchange. Not all situations are necessarily treated as exchange though. Our findings indicate that an imbalanced proportionality situation, that is, a situation where the equity ratios are equal without inputs or outcomes being equal at the same time, it is “every man for himself”: People do not seem to attribute their own outcomes to the inputs of other people. On the other hand, situations of disproportionality or balanced proportionality create strong perceptions of receiving from one another.

Equity ratios therefore represent a causal schema that appears rudimentary in an ‘interaction as exchange’ situation. This type of approach offers great potential in understanding how people attribute outcomes to possible underlying exchanges. Let’s for example take the outcome of John’s high employee performance: Attributing the performance to his own good skills may weaken the perception of John receiving from Jane, his fellow employee. On the other hand, in a closed system of a two employees’ unit, an assumption that John has low skills leads to the attribution of the ‘high performance’ outcome to inputs from Jane, which in turn implicitly points to an underlying exchange on the basis of the disproportionality of the situation. At the same time, a multiple necessary input-outcome schema (see Kelley, 1972 ) can lead to the conclusion that John both has good skills and has received from fellow employees. If both John and Jane have high performance and high skills and on the basis of our research findings, we will predict that the business interaction between John and Jane will be perceived as exchange, since it is a balanced proportional situation. On the other hand, if John has low performance and low skills, whereas Jane has high performance and high skills, the situation will most likely not be perceived as exchange. Indeed equity ratios can serve as a causal schema that can be applied in many social exchange situations and in many different ways that can be predicted by attribution theory.

Inputs and outcomes by themselves cannot determine how people will judge the situation once they perceive it as exchange, contrary to what equity theory might suggest. On the basis of our findings it seems legitimate to suggest that people are able to make judgments through rules, norms, values, terms that can be supported within the context of reasoned communication leading to agreement. Although not all real-life agreements necessarily validate the rightness of norms and especially those that determine justice evaluations, it was shown that agreement can serve as a strong criterion for evaluating a situation as just, even in the absence of any other information concerning an interaction. This finding underlines the importance people place on agreement among individuals in evaluating the fairness of any situation. By accepting the broader conception of communicative rationality and contrasting it with instrumental rationality ( Habermas, 1985 ), we can approach exchange situations and the different criteria (distributive, procedural, interactional, deontic) for evaluating the situation by focusing on a cognitive process that essentially tests the validity of any norm through the examination of what would be reasonable during communication. In the previous example of John and Jane, any type of arrangement will be judged according to what would appear reasonable in rational discussion and in the end, according to what would elicit agreement. Therefore proportional outcomes might be judged as unfair or disproportional outcomes as fair, according to communicative rationality mechanisms.

The two studies presented can be seen as a first attempt in assessing equity ratios as causal schemas and as such they have some limitations. Firstly, we only used a ‘closed’ system of two actors in which no other factors really played a role in the outcome of the exchange. We excluded third factors that might be incorporated through the presence of other actors or environmental factors such as chance. Needless to say that a factor such as chance (for chance attributions see Rotter et al., 1962 ; cf. Friedland, 1992 ) would arguably make the attribution of outcomes to the inputs of other people less probable and consequently the perception that exchange took place weaker. Secondly, we used a third-person perspective in order to examine pure cognitive processes that were as basic as possible, but it would be interesting to examine these processes from the viewpoint of participants in more ‘open’ exchange situations, either in the laboratory or in real life, especially when they are actively involved. It has been shown that people perform justice evaluations in a self-serving manner ( De Dreu, 1996 ) or that taking the perspective of other exchange participants reduces enjoyment for high credit claimers ( Epley et al., 2006 ). Reciprocation in kind is also subject to egocentric interpretations of the exchange process ( Zhang and Epley, 2009 ). It would be useful to further examine how instrumentally rational considerations influence communicatively rational perceptions since, arguably, any type of judgment is often put to the test of a dialectic process, even if it is self-interested (see Arvanitis and Karampatzos, 2011 ). Finally, we examined the use of positive resources, but the study of negative resources would be equally important.

In this paper, we have attempted to distinguish between the cognitive processes of attribution and evaluation in an exchange situation. We have generally supported our general contention that attribution and evaluation can be distinguished as different cognitive processes. Further exploration as to how these two cognitive processes are exactly linked could be potentially useful in understanding more about other processes such as prescriptive attributions ( Gollan and Witte, 2008 ) and in offering links among social exchange theory, equity theory, psychological contract theory and communicative rationality mechanisms.

Author Contributions

All authors listed, have made substantial, direct and intellectual contribution to the work, and approved it for publication.

Conflict of Interest Statement

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

1 Since we are dealing with difference scores based on 7-point scales (min = 0, max = 6), the higher the score the stronger the perception that one party receives.

2 It should be stressed that this experiment does not really compare distributive, procedural, or interactional justice rules, but rather examines whether the existence of any type of rule (even if it is never revealed) could serve as an explanation of a seemingly unjust outcome (for example, by equity theory standards) once it is mutually accepted by parties.

Supplementary Material

The Supplementary Material for this article can be found online at: http://journal.frontiersin.org/article/10.3389/fpsyg.2016.01257

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Equity Theory

The basic idea.

What are the characteristics you look for when choosing a job? Whether it’s dependent on geographic proximity, work hours, the type of work you’ll be doing, or the company, you likely want to work somewhere that is fair. Would you be satisfied at a job where you felt like all your efforts were going unnoticed and you were poorly compensated?

Equity theory focuses on whether there is a fair balance between an employee’s inputs (such as hard work, enthusiasm, and skills) and their outcomes (such as recognition, salary, and benefits). 1 According to the theory, striking this balance is necessary for a strong and productive work relationship. In order to maximize individuals’ rewards, organizations strive to create systems that fairly distribute resources across members of a group. Otherwise, inequalities will result in levels of unhappiness proportional to the amount of inequality.

In moving toward an understanding of inequity, we increase our knowledge of our most basic productive resource, the human organism. – John Stacy Adams in his seminal paper, “Toward an understanding of inequity”

Cognitive dissonance: An inconsistency between beliefs and behaviors that cause uncomfortable psychological tension. Typically, people are motivated to change one of the inconsistent elements to reduce the dissonance.

Equity theory: A special case of cognitive dissonance, equity theory specifies the conditions under which inequities will occur and the means by which they can be reduced or eliminated.

Inequity: In the context of work, inequity exists whenever one’s perceived job inputs and/or outcomes are opposite to what they believe are the inputs and/or outcomes of another.

Inputs: What an individual believes are their contributions, brought by them to the job, for which they expect a fair return.

Outcomes: The rewards received by an individual in exchange for their services.

Equity theory was developed in 1963 by John Stacy Adams, an American workplace and behavioral psychologist. 1 At the time of its conception, inequity was a prevalent concern in the fields of labor and government, but it was not fully understood. People were beginning to realize that equity between employees and employers was more than just an economic matter, so Adams set out to understand workplace inequity. Adams based his equity theory on Leon Festinger’s theory of cognitive dissonance: humans are uncomfortable when presented with conflicting beliefs and information, so we avoid such dissonance by changing one of the inconsistent elements. 2

Adams first distinguished between inputs, a worker’s contributions, and outcomes. 1 He emphasized that inputs are perceived by their contributor, and they may be perceived differently by an employer. Thus, there are two distinct characteristics of inputs:

• Recognition: Either the contributor or the other party of an exchange, or both, may recognize a certain attribute. 1 As long as the contributor recognizes its existence, it has the potential to be an input. However, if only the other party recognizes its existence, it is not considered an input.
• Relevance: If the contributor recognizes the existence of an attribute, its potential to be an input is dependent on the contributor’s perception of its relevance to the exchange. 1 If perceived to be relevant and the contributor expects a fair return for it, but the other party does not consider it to be relevant, problems of inequity occur.

On the other hand, outcomes were defined as a worker’s compensation, whether monetary or intangible. 1 Examples of outcomes include pay, intrinsic rewards, seniority benefits and job status, and outcomes tend to be correlated (i.e. greater pay and higher job status). Similar to inputs, perceptions of outcomes are based on recognition and relevance. If both parties recognize the relevance of an attribute, then it has potential to be an acceptable outcome. The role of relevance in perception is important when determining what is equitable: a salary increase may be inadequate if the employee wanted and had greater use for a formalized status bump.

Adams then addressed the need for a rigorous definition of inequity, as measured in his theory. 1 Influenced by Festinger, inequity was deemed to exist when someone’s perceived job inputs and/or outcomes were opposite to what they perceived another’s inputs and/or outcomes to be. Importantly, it is the perception of an individual’s and another person’s inputs and outcomes that matter, rather than actual inputs and outcomes. This distinction highlights how equity is rarely considered in isolation. Rather, employees will compare the ratio of their inputs and outcomes to the ratio of others’ inputs and outcomes. If an inequity is perceived to exist based on ratios, then the employee will adjust their inputs accordingly.

Inequity does not only occur when employees feel like they got the short end of the stick. 1 Adams theorized that if an employee knows that they are relatively overpaid, they will recognize that inequity exists and feel tense, similar to how they would feel if they were underpaid. In accordance with Festinger’s theory of cognitive dissonance, employees who recognize inequity will be motivated to reduce it, 2 with the strength of said motivation proportional to the amount of tension created. 1  

Adams extended his theory to explore how employees try to reduce the dissonance that comes with inequity. 1 People may increase or decrease their inputs or outcomes, distort their perceptions of their inputs and outcomes, distort their perceptions of others’ inputs and outcomes, or leave their position when inequities cannot be addressed. Additionally, people may change their referent group, which is the employee’s comparison group. According to Adams, there are four possible referent groups:

• Self-inside: The employee’s experience within their present organization;
• Self-outside: The employee’s experience with other organizations;
• Others-inside: Other people within the employee’s present organization; and,
• Others-outside: Other people outside of the organization. 1

Adams used both observational and experimental data to support his equity theory. 1 Using such evidence, he explored how the guilt and hostility that result from inequity can decrease motivation and productivity within the workplace, subsequently impacting quality of work.

Consequences

There are two main implications based on Adams’ work:

• If rewards are to motivate employees, they must be perceived as fair; and,
• It’s necessary to consider the referential others with whom the employee makes their equity comparisons. 1

By better understanding the consequences of perceived inequities in an organization, researchers and business stakeholders can identify potential factors of social conflict, and increase the degree of control that they exercise.

In fact, equity theory has been applied to many business settings in hopes of understanding employee satisfaction and motivation, focusing on implications for managers. 3 Those in executive positions must understand that employee behavior will be influenced by perceptions of workplace equity and positivity. To achieve management and productivity goals, employee outcomes must be maximized - but this extends beyond monetary compensation. Research also highlights how important it is for executives to understand their employees, including the variables that influence their perceptions of equity and how they adjust input and outcome levels. 4

While mostly developed for relationships within an organization (i.e. between an employee and their employer), equity theory has also extended to external business applications. 5 6 For example, high outcome policies for handling consumer complaints - such as full and longer return policies - have been suggested to be most effective. High outcome policies will make customers feel that they are being treated fairly, maximizing the possibility of their return and minimizing negative word of mouth that could hurt business. Retail workers can use these findings to inform strategies for addressing consumer complaints, producing a competitive advantage.

Controversies

Some people have criticized Adams’ equity theory for its simplicity, arguing that a number of demographic variables (i.e. age, sex, and nationality) and personality traits (i.e. wok ethic and Machiavellianism) can influence people’s perceptions of equity. 7 While Adams addressed the need for future research to determine which variables guide people’s choices of referent groups, he did not specify variables that guided people’s comparisons. 1 It is possible that perceptions of equity are much more subjective than a ratio between inputs and outcomes, which are subjective on their own.

The equity sensitivity construct was developed in 1987, in response to the criticisms above. 7 The construct proposed that people have consistent but different preferences for equity, influencing their reactions to perceived inequity. These preferences are expressed on a continuum, from preferences for extreme under-benefit to preferences for extreme over-benefit, with three classes of people:

• Benevolent individuals who prefer when their own input and outcome ratios are lower than those of their referent groups. These people prefer to under-benefit.
• Equity sensitives who prefer when their input and outcome rations are equal to those of their referent groups.
• Entitled individuals who prefer when their own input and outcome ratios are greater than those of their referent groups. These people prefer to over-benefit.

Other criticisms have highlighted how perceptions of inequity may extend beyond inputs and outcomes of relationship, such that they are also dependent on the overall system that determines said inputs and outcomes. 8 For example, two employees may be compensated equitably in relation to each other, but they may feel that the overall compensation system is unfair. In this case, while there is no inequity as defined by Adams, employees may be unsatisfied with the organization.

To address concerns of overall equity, some researchers have developed an alternative way to measure fairness in workplaces. 8 Rather than specifying a specific referent person or group, employees assess equity based on their internally derived standards for comparison. This way, comparisons will result in an overall feeling of fairness about the relationship of all elements in the employee’s environment.

Two-tier wage structures

Two-tier wage structures ensure that the top rate of pay for new employees is substantially lower than the pay for old employees. 9 Such wage structures have been controversial in workplace organization: employers favor them, while employee reactions range from acceptance to outright rejection. Under a two-tier wage structure, one’s hiring date is the only criterion for whether an employee is placed on the low- or high-wage tier. As a result, employees could have the same job titles and responsibilities, yet receive different pay outcomes for similar inputs of effort.

Applying Adams’ equity theory, researchers explored employee perceptions of equity under a two-tier wage structure and implications for workplace performance. 9 Surveying retail employees who were paid under this wage structure, low-tier employees perceived significantly lower equity. Additionally, low-tier employees in new stores had significantly higher scores compared to low-tier employees in old stores, in commitment to employer; perceived fairness of pay compared to people doing the same work for other employers (external equity); perceived fairness of pay compared to people doing the same work in their store (internal equity); and overall satisfaction with pay.

The study’s findings supported equity theory in a field setting, extending equity theory’s relevance to two-tiered wage structures. 9 The findings emphasized the need for those in management positions to consider matters of perceived equity before implementing a two-tier wage structure. While organizations cannot control all employees’ perceptions of equity, they can control the structures that influence such perceptions.

Working with individuals with intellectual disabilities

Increasing research on the role that staff play in the lives of individuals with intellectual disabilities has emerged since the 1990s. 10 While theoretical models have been used to assess specific and individual staff outcomes within intellectual disability services, they have tended to only be applicable to a narrow range of outcomes. However, a broader understanding is required to understand the role that equity plays in staff performance, who play an important role in the lives and well-being of those with intellectual disabilities. Equity theory can be used beyond the scope of traditional businesses to consider a broad range of staff outcomes including stress, burnout, turnover, behavior, performance, and satisfaction.

Based on a systematic review of the existing literature, Adams’ theory was found to explain the relationships between staff outcomes and the characteristics of staff, such that differences in weightings of specific inputs or outcomes lead to different perceptions of equity. 10 For example, males seem to give more weight to rates of pay than females, especially when since is often difficult for direct-care staff to increase their hourly wage. Staff may also differ in the referent groups they use, such that individuals with higher levels of education are more likely to determine equity by comparing their outcomes with people outside of the organization. Higher levels of dissatisfaction and turnover among more educated direct-care staff may be the reason for these external comparisons.

Staff may also differ in the ways they restore equity: higher turnover rates among males and higher rates of absenteeism among females may reflect gender differences in ways of dealing with perceived inequity. 10 Characteristics of the service user may also influence perceptions of equity, such that staff tend to have higher levels of stress and turnover when working with individuals with more challenging behaviors. Considering the variability in perceptions of equity and the impact they can have on staff and service users alike, increasing research needs to be done to understand how Adams’ equity theory plays out for staff who work with individuals with intellectual disabilities. Importantly, equity theory can capture a broader range of staff outcomes than prior theories that were used to assess isolated outcomes.

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• Adams, J. S. (1963). Toward an understanding of inequity. Journal of Abnormal and Social Psychology, 67 (5), 422-436.
• Festinger, L. (1957). A Theory of Cognitive Dissonance (Vol. 2). Stanford University Press.
• Jewczyn, N. (2010). A comparison of equity theory and expectancy theory and some implications for managers in a global work environment. Journal of Business Management and Entrepreneurship, 1 (8), 1-11.
• Konopaske, R., & Werner, S. (2002). Equity in non-North American contexts: Adapting equity theory to the new global business environment. Human Resource Management Review, 12 (3), 405-418.
• Huppertz, J. W., Arenson, S. J., & Evans, R. H. (1978). An application of equity theory to buyer-seller exchange situations. Journal of Marketing Research, 15 (2), 250-260.
• Lapidus, R. S., & Pinkerton, L. (1995). Customer complaint situations: An equity theory perspective. Psychology & Marketing, 12 (2), 105-122.
• Huseman, R. C., Hatfield, J. D., & Miles, E. W. (1987). A new perspective on equity theory: The equity sensitivity construct. Academy of Management Review, 12 (2), 222-234.
• Carrell, M. R., & Dittrich, J. E. (1978). Equity theory: The recent literature, methodological considerations, and new directions. The Academy of Management Review, 3 (2), 202-210.
• Martin, J. E., & Peterson, M. M. (1987). Two-tier wage structures: Implications for equity theory. Academy of Management, 30 (2), 297-315.
• Disley, P., Hatton, C., & Dagnan, D. (2009). Applying equity theory to staff working with individuals with intellectual disabilities. Journal of Intellectual & Developmental Disability, 34 (1), 55-66.

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What Is Adam’s Equity Theory Of Motivation In The Workplace?

Equity Theory helps us analyze employee motivation in terms of equality and fairness.

Workplace motivation differs from employee to employee. For some employees, motivation means money, status, etc.

For others, it is about doing their best and becoming the star performer .

Many business leaders have invested their time to understand employee perception and theories of motivation. They test these theories in the workplace to learn how it affects employee productivity and efficiency.

One such motivation theory is Equity Theory, and this article will shed some light upon it. But before we go in-depth, let’s understand:

What is Adam’s Equity Theory of Motivation?

Equity Theory, otherwise known as the Equity Theory of Motivation, was introduced in 1963 by John Stacey Adams, a workplace behavioral psychologist.

It is based on a simple idea.

A succesful workplace can enhance team motivation by treating everyone with respect and dignity.

According to Adam’s Equity Theory of motivation, employees who identify a situation of inequality between them and their peers will feel demotivated and distressed.

For example, if an employee knows that their colleague is getting a higher salary than them for the same amount of work, this might create dissatisfaction.

The theory also indicates that the higher the level of equity (fairness) amongst employees, the higher the level of motivation. Similarly, the prime reason for employee demotivation is inequity.

Also Read: Employee Motivation: A Comprehensive Guide

Understanding Adam’s Equity Theory of Motivation in the Workplace

If we were to understand Adam’s Equity Theory fully, we must know the inputs and outputs of employees first. Inputs are nothing but the things an employee does to achieve the outputs.

Inputs are nothing but every small or significant contribution employees make towards the organization. For instance:

Inputs include:

• The number of working hours
• The experience brought to practice
• Personal sacrifices (if any)
• Loyalty towards mentors, managers, and the organization
• Job role and responsibilities
• Flexibility to work under pressure or strict deadlines

Whereas outputs, commonly referred to as outcomes, are what the employee receives because of their inputs in the organization. Some of them are tangible benefits like salary or intangible benefits like flexible working hours and recognition .

Some of the typical outputs are:

• Annual Holidays
• Company travels
• Recognition
• Performance appraisals
• Flexibility
• Significant achievements
• Learning and Development

We can clearly define equity now that we understand the basics of inputs and outputs..

The definition of equity is an employee’s outputs divided by their inputs.

But Adam’s Equity Theory is a level-up and mentions that individuals do not measure equity in isolation. Instead, they compare with their peers. If they come across an inequitable situation, they tend to adjust their inputs to maintain balance.

To maintain the balance, employees constantly regulate their inputs. Let's say X and Y have identical inputs. But, the output of Y is vastly larger than that of X. Thus, X would feel highly demotivated.

Also, employees will have to give better inputs if their outputs are more significant than their colleagues doing the same job. Employees’ perception of equity depends on how their managers treat them by giving them equal respect and opportunities.

How To Compare: Referent Groups

A referent group is a group of people a person uses for comparison. As per Adam’s Equity Theory, there are four significant referent groups people tend to compare themselves with.

• Self-inside: An employee’s intrinsic experience in their current workplace
• Self-outside: An employee’s experience with the industry standards
• Others-inside: An employee comparing themselves with someone from their current workplace
• Others-outside: An individual comparing themselves with someone outside their workplace

Let’s have a look at this with an example to understand better.

If a UX Designer compares their salary with other UX designers in the same company then the referent group is others-inside .

If the same employee compares their pay with an acquaintance from a different company, it refers to others-outside .

If they compare their pay with their previous job, it relates to self-outside .

And, when they contemplate on their performances in the same organization, it refers to self-inside .

Surprisingly, the Equity Theory of Motivation in the workplace is applicable when employees compare themselves to people in absolute opposite job roles and significant salary differences.

For instance, let’s take the example of a UX Designer. They might compare themselves to the CEO, who earns much higher than them. How can this seem fair to you?

Well, here’s the answer!

Employees determine their inputs to be very different. They will see that even though they have a lesser salary than the CEO, they have an excellent work-life balance. They might know the CEO is traveling very often for client meetings, work long hours even on weekends, and deals with tremendous stress. In such a situation, employees console themselves to see the fairness established in their minds.

As a leader or a manager, keep in mind, Equity Theory is applicable in a broad sense. Every employee responds to inequitable relationships in their unique way.

Equity Theory Examples in the Workplace

One can identify Equity Theory in the workplace by overhearing conversations among their colleagues and peers.

Generally, employees compare themselves with people who get higher salaries than them. Equity Theory comes into existence when you hear things like:

• “Miranda earns more than me, but I don’t see her doing much work.”
• “I get less salary compared to Miranda, but this place needs me more than her.”
• “Hey, did you know the new guy gets paid three times more than us yet works few hours! Hows is this fair?”

With these examples, we can see employees comparing their remuneration and contribution with others. However, salary comparison is a common practice amongst employees. There are other types of comparison like learning opportunities, work from home opportunities, flexibility, etc.

Critical Points for Managers to Keep in Mind

Here are some essential things to keep in mind to understand equity theory in the workplace if you’re managing a team:

Employees measure their total inputs against all outputs. For example, a single parent will accept flexible working hours and lesser pay.

Social comparison plays a vital role while being fair to every employee. Two employees who do the same work will compare their performances with individual perceptions. As a good team leader, you must learn these expectations and influence values.

Senior employees get more salary than juniors. But, paying excessive salaries is a sign of demotivation amongst other employees. One must know to balance both.

An employee who receives higher compensation and recognition will increase their effort. Similarly, if an employee feels underpaid, their motivation level goes down.

Managers must also keep track of options available to the ti reduce inequality and partiality in the workplace. They are:

• Change employees’ inputs or outputs
• Change inputs or outputs of others
• Change the perception of inputs and outputs

Equity Theory- Summary

Overall, Adam’s Equity Theory of Motivation indicates that employees can attain higher motivation when every employee gets equal and fair opportunities.

It is common for employees to compare themselves to other employees from inside and outside the organization. They compare their total of all inputs against the sum of all outputs.

If they see inequality and unfairness, they will lower their inputs to compensate. They will choose to work more or work less depending on the positivity or negativity of the situation.

This article is written by Gautam Gayan . He works as a Content Marketer at Vantage Circle . Apart from being a passionate content creator for HR services and employee engagement, Gautam is a theatre enthusiast, an avid reader and an aspiring poet. For any related queries, contact [email protected]

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Equity Theory: Definition, Origins, Components and Examples

In any managerial role, understanding what drives employee motivation is crucial for success. Equity theory offers valuable insights into this aspect, focusing on how perceptions of fairness can significantly impact workplace enthusiasm and efficiency. This article delves into the history, fundamental principles, and components that make up this important theory. It also provides actionable strategies for managers to maintain a balanced and motivated workforce by applying equity theory.

See also: Alderfer’s ERG Theory

What is the equity theory of motivation?

Equity theory is central to understanding how employees’ motivation in the workplace is influenced by their perception of fairness . According to this theory, employees maintain a mental record, akin to a ‘ledger,’ that keeps track of what they contribute to their job and what they receive in return. These contributions or ‘ inputs ‘ could range from the amount of effort they put into tasks, their skill level, educational background, and overall work experience. In contrast, ‘ outputs ‘ or rewards can include things like salary, additional benefits, and opportunities for career advancement (1).

When it comes to gauging their level of motivation and job satisfaction, employees often compare their own input-output balance to that of their co-workers. If an employee feels that this balance is skewed in comparison to others, there’s a high chance they’ll become less enthusiastic and content with their job role. This could, in turn, affect their performance and overall productivity.

See also: Expectancy Theory Of Motivation

However, if an employee thinks that their contributions and rewards are on par or better than their colleagues, they are likely to feel a higher sense of motivation and job satisfaction. This insight, grounded in equity theory , can be a useful tool for managers and business owners to ensure a motivated and content workforce.

The origins of equity theory

Equity theory came into prominence in 1963 through the work of John Stacey Adams , a behavioural and workplace psychologist. The theory aims to provide insights into relational satisfaction based on the concept of perceived fairness. Adams developed this theory as a way to fill a noticeable gap in the psychological understanding of how individuals perceive inequities, a concern that has been particularly significant for employers and governmental bodies, as it directly influences employee attitudes and behaviours towards their organisations (2).

Drawing on pre-existing research in both sociology and psychology, Adams reasoned that the concept of equity goes beyond the simple economic measurements of being overpaid or underpaid. Instead, it involves intricate cognitive and psychological processes that are influenced by social context. This means that the assessment of what is deemed ‘ fair ‘ or ‘ unfair ‘ is socially constructed and is more nuanced than straightforward financial calculations.

See also: Theory X And Theory Y, Douglas McGregor

The significance of equity theory is two-fold. On an organisational level , understanding these principles can help mitigate financial repercussions that arise from negative employee behaviour, such as decreased productivity or higher turnover rates. Concurrently, the theory holds broader social importance , as it offers a framework for promoting fairness and justice in interpersonal interactions and relationships. By doing so, it aims to guide the regulation of both organisational outcomes and social justice (3).

Theoretical Foundations

As mentioned, Equity Theory is a construct that draws its foundational principles from three key theories within the realms of social science and psychology.

Social Exchange Theory

The Social Exchange Theory serves as one pillar, suggesting that the essence of social interactions is based on individual assessments of the pros and cons associated with a given relationship. It maintains that people remain in relationships as long as they perceive the benefits to outweigh the costs.

Social Comparison Theory

Another cornerstone is the Social Comparison Theory. This theory details the cognitive processes people employ to gauge whether the distribution of rewards and penalties in a relationship is equitable. It was incorporated into Equity Theory based on earlier evidence which revealed that employees tend to perceive a distribution of rewards as unfair if they find that their contributions surpass those of their peers within the same organisational division.

Cognitive Dissonance Theory

Lastly, the Cognitive Dissonance Theory plays an instrumental role in understanding how individuals cope with the emotional turmoil triggered by incongruent beliefs or cognitions. This theory further clarifies how people are motivated to relieve this tension either through passive acceptance or proactive steps to alter the situation.

By synthesising elements from these three core theories, Equity Theory offers a holistic explanation that encompasses the nature of human relationships, the cognitive evaluation mechanisms at play, and the ensuing emotional and behavioural reactions to these evaluations. This combination allows for the development of strategies to manage interpersonal relationships effectively, both within and outside organisational settings (4).

See also: Herzberg’s Motivation-Hygiene Theory: Two-Factor

Components of the equity theory of motivation

The equity theory of motivation fundamentally rests on two core concepts: the effort a person invests, often called ‘inputs’, and the rewards a person receives, known as ‘outcomes’. These two components play a critical role in shaping an employee’s level of motivation.

Inputs, they can be broadly defined as the contributions an individual makes to secure some form of reward. This can range from the hours spent working and the responsibilities taken on, to the level of loyalty exhibited toward an organisation and the overall enthusiasm for the job at hand. Employees often make a distinction between elements they can control, such as punctuality and communication skills, and those that are beyond their control, like the level of training provided by the employer or their years of service in the company.

Outcomes – Outputs

Outcomes are the compensations or benefits received in exchange for these contributions. Sometimes these rewards can be easily quantifiable, like a paycheck, job stability, or fringe benefits like healthcare packages and time off. However, not all outcomes can be measured in concrete terms. Some are more elusive but equally significant, like gaining respect from colleagues, building a solid professional reputation, or deriving a sense of satisfaction and pride from your own work.

It’s essential that the worth assigned to the outcomes should, in an ideal world, mirror the significance of the inputs. For example, someone who has invested in higher education might anticipate that their advanced qualifications will lead to superior job prospects.

See also: McClelland’s Three Needs Theory: Power, Achievement, And Affiliation

Factors that affect equity theory

The concept of equity theory incorporates two key elements known as ‘ referents ’ and ‘ moderating variables ’. These components can shape how a worker views fairness.

Referent groups

In the workplace, employees tend to form judgments about the fairness of their treatment by drawing up a range of comparisons, often referred to as referent groups. These referent groups come in four distinct categories.

• Self-inside: An employee may use a ‘Self-inside’ benchmark, drawing on their own previous experiences within the same organisation.
• Self-outside: the ‘Self-outside’ referent is used when an employee compares their current situation with their own experiences in other organisations.
• Other-inside: An employee might employ the ‘Other-inside’ referent, where they assess their own inputs and outcomes against those of another colleague within the same company.
• Other-outside: Lastly, the ‘Other-outside’ referent involves measuring one’s own situation against that of individuals in comparable positions but in different organisations.

By employing one or more of these referent types, either consciously or unconsciously, employees form a nuanced view of how equitably they are being treated. For example, an individual who previously felt underappreciated at another company might find themselves more acknowledged in their current role. In this instance, they are likely to use a ‘Self-outside’ comparison, leading them to the conclusion that they are currently in a more equitable employment situation. This understanding not only informs the employee but also offers actionable insights for management to maintain a balanced and motivating work environment (5).

Moderating variables

Moderating variables like educational background and years of experience play a crucial role in shaping an employee’s view of fairness in their work setting. For instance, individuals with advanced education are often inclined to draw upon their broader industry network when making comparisons about fairness, looking beyond their current organisation. Conversely, those who have built up a longer tenure either in their role or within the same company tend to use internal benchmarks or colleague comparisons as their measure for fairness. Employees with less experience, however, are likely to rely on their own personal knowledge and understanding when assessing what is fair.

Five Key Principles

Now that we have looked at the main components of Equity Theory, let’s examine the five key principles that explain the dynamics of equity in interpersonal relations:

• According to the theory, human interactions operate on an equity norm, meaning people inherently seek a fair exchange where their contributions are adequately rewarded. Within a collective setting, this principle implies that group members who abide by this equity norm are positively reinforced, while those violating it face consequences.
• The second principle revolves around the mechanism for assessing equity, which involves comparing one’s own contributions and benefits to those of another individual. People may either compare themselves to a specific individual, or to a broader societal measurement, which could include universally accepted standards or pre-established social norms. A person may even use their own past experiences as a point of reference to evaluate current rewards and contributions.
• Thirdly, the theory addresses the conditions under which perceptions of inequity arise. For example, in a work setting, if employees perceive a disconnect between their professional credentials, like education and responsibilities, and the rewards they receive, such as pay or job security, they will likely experience a sense of inequity, especially when comparing their gains to what they believe others are receiving.
• The fourth key principle illustrates that perceptions of inequity can result in psychological dissonance that may manifest as emotional distress. The disparity between one’s own outcomes and that of another can evoke negative emotions like anger when the individual perceives they are receiving less, or guilt when they feel they are getting more than their due. This emotional dissonance is amplified depending on the level of perceived inequity and is not limited to professional settings but also extends to familial and other personal relationships.
• Lastly, the fifth principle posits that individuals will naturally attempt to restore a sense of equity to relieve the emotional strain caused by perceived inequity. The theory enumerates seven distinct coping strategies, ranging from actively altering the distribution of rewards and contributions to more psychological approaches like altering one’s own perception of the situation. These strategies offer a blueprint for individuals to navigate the complexities of equity, whether in a work environment or in personal relations (6).

By understanding these five foundational principles, it is possible to better grasp the intricate complexities of equity and inequity in various relational contexts, and thereby gain insights into managing interpersonal dynamics more effectively.

See also: Model Of Motivation: ARCS Instructional Design

How to apply the equity theory of motivation in the workplace

Understanding your team’s motivation is crucial, and the framework provided by Equity Theory can be quite enlightening. To implement this theory effectively in your workplace, consider these three core strategies:

• Establish fairness: If you are in a position of seniority, one of your first priorities should be to set up a fair reward system. Make it a point to offer equal rewards for equal amounts of work. Regular team meetings can be a good venue to make sure everyone feels recognised for their contributions.
• Benchmark compensation: Salary is often at the heart of how team members judge their treatment at work. To keep your team satisfied, align your compensation packages with the market standards. Doing a bit of market research, for example, by looking at online databases to check competitive salaries, can arm you with the necessary information for defining appropriate compensation levels.
• Understand individual preferences and emotional states: Different team members are motivated by different things. Some may put a higher value on monetary rewards, while others might be more motivated by job satisfaction or opportunities for growth. Personalised discussions can offer you a clear idea of what each team member values most, allowing you to formulate a plan that keeps everyone engaged and satisfied. Similarly, emotional factors can also come into play. If a team member feels under-rewarded, they may develop feelings of resentment that could lead to decreased performance. On the other hand, over-rewarding can cause guilt, affecting morale in a different way. Therefore, emotional considerations should not be underestimated when applying Equity Theory.

In summary, equity theory provides a comprehensive framework for understanding the complexities of motivation in the workplace. Rooted in decades of academic research, this theory explains how employees weigh their contributions against the rewards they receive, and how these perceptions influence their overall job satisfaction and productivity. Managers who make use of the insights offered by equity theory can create a more harmonious and effective work environment. By being aware of the individual needs and expectations of their team, they can create a work culture that not only values fairness but also promotes long-term engagement and success.

• Adams, J.S. & Freedman, S. (1976). Equity Theory Revisited: Comments and Annotated Bibliography. Advances in Experimental Social Psychology, 43-90.
• Adams, J.S. (1963). Towards an understanding of inequity. The Journal of Abnormal and Social Psychology, 67 (5), 422-436.
• Chou, E., Lin, C. & Huang, H. (2016). Fairness and devotion go far: Integrating online justice and value co-creation in virtual communities. International Journal of Information Management, 36 (1), 60-72.
• Lăzăroiu, G. (2015). Employee motivation and job performance. Linguistic and Philosophical Investigations, (14), 97-102.
• Burgess, R. L., & Huston, T. L. (Eds.). (2013). Social exchange in developing relationships. Elsevier.
• Greenberg, J., & Cohen, R. L. (Eds.). (2014). Equity and justice in social behavior. Academic Press.

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Equity Theory – Keeping Employees Motivated

In this article:

Everyone in the workplace is motivated by something. This motivation could be external in nature, such a money, and status, or internal, such as a desire to do a good job. Leaders and managers have sought to understand theories of motivation and then test them in the workplace to increase the productivity and effectiveness of their workforce.

Equity Theory is based on the idea that individuals are motivated by fairness. In simple terms, equity theory states that if an individual identifies an inequity between themselves and a peer, they will adjust the work they do to make the situation fair in their eyes. As an example of equity theory, if an employee learns that a peer doing exactly the same job as them is earning more money, then they may choose to do less work, thus creating fairness in their eyes.

Understanding Equity

To understand Adam’s Equity Theory in full, we need to first define inputs and outputs. Inputs are defined as those things that an individual does in order to receive an output. They are the contribution the individual makes to the organization.

Common inputs include:

Outputs (sometimes referred to as outcomes) are the result an individual receives as a result of their inputs to the organization. Some of these benefits will be tangible, such as salary, but others will be intangible, such as recognition.

Now that we understand inputs and outputs, we’re in a position to define equity. Equity is defined as an individual’s outputs divided by that same person’s inputs.

Adam’s Equity Theory goes a step further and states that individuals don’t just understand equity in isolation, instead they look around and compare themselves to others. If they perceive an inequity then they will adjust their inputs to restore balance. This is illustrated in the following equity theory equation.

How We Compare: Referent Groups

A referent group is simply a collection of people a person uses for the purposes of comparison. For Adam’s Equity Theory of Motivation, there are four referent groups people compare themselves with:

For example, if a programmer compares what they earn to other programmers within the same organization then the referent group is the others-inside. If they compare themselves to programmers they know socially then the referent group is others-outside. If they were to compare themselves to what they earnt in their previous job then the referent group is self-outside.

Well, the answer is that they will perceive the inputs to be vastly different. They will see that they have a great work-life balance whereas the CEO is traveling a lot of the time. They may perceive that the CEO has vastly more experience, alongside working much longer hours and having to deal with more stress. In this way, fairness is established in the mind of the individual.

It is always worth remembering that Equity Theory applies in a very broad sense. Each person will respond to perceived inequality in their own individual and unique way.

Equity Theory Examples

As you can see, in each of these examples someone is comparing their own compensation and effort against someone else’s. Although comparing compensation is the most common comparator, other typical forms of comparison include comparing learning opportunities or comparing opportunities to work from home.

Key Points for Managers

If you’re responsible for a team, then the key points you’ll need to keep in mind are:

Equity Theory Summary

In essence, the Equity Theory of Motivation proposes that high levels of employee motivation in the workplace can only be achieved when each employee perceives their treatment to be fair relative to others. Employees will compare themselves to other groups both inside and outside of the organization. In doing so, they will compare the total of all inputs against the total of all outputs. If they perceive unfairness they will adjust their inputs to compensate, working more or working less, depending on if their situation is positive or negative relative to the group or person being compared.

Cite this article

Originally hailing from Dublin, Denis has always been interested in all things business and started EPM in 2009. Before EPM, Denis held a leadership position at Nokia, owned a sports statistics business, and was a member of the PMI's (Project Management Institute’s) Global Executive Council for two years. Denis now spends his days helping others understand complex business topics.

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What Is Adam’s Equity Theory of Motivation?

• Examples of Equity Theory of Motivation
• Why Is the Equity Theory of Motivation Important?
• Advantages and Disadvantages of Equity Theory

Criticism of Equity Theory of Motivation

Final words.

Motivation gets you up in the morning, regardless of how you feel. It is an essential part of our lives, but we all experience it differently. 

As individuals, each person is motivated by different things, and understanding what we are motivated by is an incredible way to improve motivation and inspire others.

The equity theory of motivation is one way to think about motivation, and it can be a helpful tool for individuals looking to understand themselves and others better. Please keep reading to learn more about this influential theory and how it potentially impacts your intrinsic motivation.

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Equity theory states that individuals are motivated by their perception of fairness. In other words, we are motivated when we feel that we are being treated fairly compared to others. Our motivation decreases when we don’t feel like our jobs treat us fairly.

John Stacey Adams

John Stacey Adams developed his theory back in the 1960s. Adams worked as a workplace behavioral psychologist, and many consider him to be one of the most influential psychologists of his time.

When our perception of perceived fairness is low, so is our motivation. When our perception of fairness is high, our motivation is also high.

Adam's equity theory suggests that people are motivated to maintain equity between the inputs they put into a situation and the outcomes they receive from it. Inputs are the things we put into our jobs, such as time, energy, and effort. Outputs are the things we get from our position, such as pay, vacation days, and recognition.

The Importance of Fairness

This theory of motivation suggests that employees who feel like they are putting more into their job than they are receiving will be less motivated. On the other hand, employees who feel like they are getting more out of their career than they are putting in will be more motivated.

It’s important to remember that everyone has different standards for what they consider fair. What one person decides is acceptable, another person may not. 

That’s why it’s so important to maintain open communication with the people you work with. Communicating with your coworkers allows you to understand better what they perceive as fair and adjust your behavior accordingly.

How To Use This Theory

The equity theory of motivation can be a helpful tool for individuals looking to improve their intrinsic motivation.

Extrinsic motivation – doing something in order to receive a reward or avoid punishment – is fairly common in the workplace. Many businesses implement rewards for their best employees, for example. Intrinsic motivation, in contrast, is the desire to accomplish something because we enjoy it or think it’s important, not because of external factors.

If you’re looking to increase your intrinsic motivation, it’s essential to ensure that you feel like you are treated with fairness. Adam's equity theory of motivation can help you identify when you feel undervalued or overworked. Once you’ve identified these feelings, you can take steps to address them.

It’s also critical to recall this is just one of many theories of motivation . This postulation focuses on the idea of fairness, but others, like the ERG theory of motivation, focus on different aspects of motivation. They usually complement one another.

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Examples of Equity Theory of Motivation in the Workplace

There are many ways to put this theory into practice in the workplace. Some equity theory examples are:

• Openly communicate with your boss or supervisor about your workload. If your boss is asking you to do too much, voice your concerns. By doing so, you can mutually agree on what is fair.
• Keep track of the hours you work. Talk to your boss if you feel you are putting in more hours than your coworkers. Again, open communication is critical.
• If you’re in a management position, take the time to get to know your employees. Ask them how they’re doing and if there’s anything you can do to help. By building a relationship with your employees, you can better understand their needs and ensure that they feel valued.

These are just a few examples of how to identify equity theory. A good way of applying equity theory is to think about fairness. Speak up if your boss mistreats you. The goal is to maintain equity in the workplace so that everyone feels motivated and valued.

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Why Is the Equity Theory of Motivation Important for Leaders?

This theory is critical for leaders because it can help them create a work environment that is fair and motivating for their employees.

Employees who feel like their jobs treat them fairly are more likely to be intrinsically motivated . Intrinsic motivation is important because it leads to employees who are passionate and engaged in their work.

Leaders who let employees determine what is fair compensation can help reduce equity tension in the workplace. It also promotes a sense of job security.

A great way a leader can implement this motivation theory is to accept flexible working hours (if the company allows for it), consider employee perception, and define equity in the workplace and within the team.

Leaders who create a fair and motivating work environment are likelier to have invested employees who care about the organization’s success. Invested employees, in turn, lead to a more prosperous and productive organization and are more likely to stay in the same organization.

Adams' equity theory is just one tool leaders can use to create a fair and motivating work environment. However, it’s a vital tool because it helps leaders understand the importance of fairness in the workplace. It is often a topic of executive coaching for leadership development , which approaches leadership training with a focus on self-awareness.

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Advantages and Disadvantages of Equity Theory of Motivation

Although this theory of motivation may seem like a beautiful concept, it does have its advantages and disadvantages.

Advantages of Equity Theory:

• It helps individuals assess if their bosses treat them fairly 
• Encourages individuals to communicate openly about their workload
• Builds relationships between employees and managers

Disadvantages of Equity Theory:

• It can be time-consuming for leaders to build relationships with each employee
• It may lead to conflict if employees have different concepts of fairness and do not agree with each other

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John Adams is not the only workplace behavioral psychologist who studied workplace motivation. Although many respect his work and the workplace equity theory of motivation, it is not perfect.

Motivations Other than Fairness

One of the main criticisms of this theory of employee motivation is that it doesn’t account for different types of motivation. For example, some people may be motivated by more than just fairness. They may also be motivated by recognition or a sense of accomplishment.

Another criticism of this theory is that it doesn’t always lead to the most productive work environment. For example, if employees are constantly focused on whether or not they are being treated fairly, they may spend less time working.

One of the other significant criticisms is that it assumes that people are rational beings , which may not always be the case. People are often driven by emotions, leading them to make decisions that are not always rational.

Despite these criticisms, this theory is still widely accepted. It can be useful for leaders and managers who want to create a just and motivating work environment.

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Overall, the equity theory of motivation is helpful for leaders and employees. It can help individuals assess whether or not they are being treated fairly and encourages communication about workloads. Although it has its criticisms, this theory of motivation is still widely accepted.

By understanding the theory, individuals can assess if they are being treated with fairness and take steps to address any concerns. Adams' theory of motivation can help create a fair and motivating work environment for all.

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An experiential exercise for teaching theories of work motivation: using a game to teach equity and expectancy theories

Organization Management Journal

ISSN : 2753-8567

Article publication date: 1 July 2020

Issue publication date: 27 November 2020

This paper aims to provide an experiential exercise for management and leadership educators to use in the course of their teaching duties.

Design/methodology/approach

The approach of this classroom teaching method uses an experiential exercise to teach Adams’ equity theory and Vroom’s expectancy theory.

This experiential exercise has proven useful in teaching two major theories of motivation and is often cited as one of the more memorable classes students experience.

Originality/value

To the best of the authors’ knowledge, this is an original experiential exercise for teaching the equity and expectancy theories of motivation.

• Work motivation
• Equity theory
• Expectancy theory

Experiential exercise

Swain, J. , Kumlien, K. and Bond, A. (2020), "An experiential exercise for teaching theories of work motivation: using a game to teach equity and expectancy theories", Organization Management Journal , Vol. 17 No. 3, pp. 119-132. https://doi.org/10.1108/OMJ-06-2019-0742

Emerald Publishing Limited

Copyright © 2020, Jordon Swain, Kevin Kumlien and Andrew Bond.

Published in Organization Management Journal . Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

Theories of work motivation are central to the field of management and are covered in many introductory management, leadership, human resource management and organizational behavior courses ( Benson & Dresdow, 2019 ; Steers, Mowday, & Shapiro, 2004 ; Swain, Bogardus, & Lin, 2019 ). Understanding the concept of work motivation helps undergraduate students prepare for leading and managing others. Teaching these concepts in the classroom allows students to experiment and share ideas with others in a lower-stakes environment than if they were in an actual place of work with other employees. But teaching students theories of work motivation is not easy. First, there are dozens of theories ranging from Maslow’s hierarchy of needs, to self-determination theory, to goal setting theory, to Herzberg’s motivation-hygiene theory (a.k.a. two-factor theory), to job characteristics theory, just to name a few ( Anderson, 2007 ; Holbrook & Chappell, 2019 ; Latham & Pinder, 2005 ; Locke & Latham, 1990 ). Second, students tend to evaluate the explanatory power of different motivational theories based on how they relate to their work and life experiences ( Anderson, 2007 ). This tendency to view motivation theories through the lens of personal experience poses a challenge for undergraduate level students who have limited work exposure; they often lack the context to make sense of the various motivational theories ( Mills, 2017 ). Therefore, to provide a common experience through which students can understand theories of work motivation, we developed an experiential activity. Specifically, we use an in-class basketball exercise. This experiential approach not only provides a common context for students to reference in applying theories of work motivation, but also incorporates elements of fun and competition, which have been shown to help engage students more fully ( Helms & Haynes, 1990 ; Azriel, Erthal, & Starr, 2005 ).

While there are numerous theories of work motivation ( Latham & Pinder, 2005 ), like others, we have found focusing on too many of these theories during one class overwhelms students and causes them to question academics’ understanding of the topic ( Anderson, 2007 ; Holbrook & Chappell, 2019 ). However, focusing on too few theories also limits students’ education and understanding of why multiple theories of motivation exist. We find that acknowledging the existence of multiple theories is advisable, and we suggest instructors emphasize the complexity of motivation, but that they do not try to force students to learn or apply the details of a large number of theories of motivation in a single class period. Therefore, our exercise focuses on two basic theories of work motivation – Vroom’s Expectancy Theory and Adams’ Equity Theory. We chose to focus on these two theories because they are among the most influential theories of work motivation ( Anderson, 2007 ; Holbrook & Chappell, 2019 ; Miner, 2003 ) and among the most frequently included in management and organizational behavior courses and textbooks ( Miner, 2003 ; Miner, 2005 ).

Theoretical foundation

Both expectancy and equity theories of motivation have been identified as important frameworks for teaching and understanding motivation, and both emphasize the cognitive approach to motivation ( Miner, 2003 ; Stecher & Rosse, 2007 ).

Adams’ equity theory centers on the perception of fairness ( Adams, 1963 ). When people feel they have been fairly treated, they are more likely to be motivated. When they feel they have not been fairly treated, their motivation will suffer. These perceptions of equity are derived from an assessment of personal input and outputs – or what people put into a task compared to what they receive as a result ( Adams, 1963 ; Kanfer & Ryan, 2018 ). Inputs can include things like time, effort, loyalty, enthusiasm and personal sacrifice. Outputs can include but are not limited to, thing likes salary, praise, rewards, recognition, job security, etc. But the theory is more complex than simply the assessment of personal inputs weighed against outputs. Adams’ equity theory also incorporates the concept of perceived equity ( Adams, 1963 ; Kanfer & Ryan, 2018 ). People compare their inputs and outputs to others. If they feel that another person is putting in the same level of effort, but getting more outputs as a result, that person’s motivation may suffer ( Kanfer, 1990 ; Kanfer & Ryan, 2018 ; Stecher & Rosse, 2007 ). This theory can be summarized using a visual equation that highlights how perceived equity can impact motivation ( Appendix 1 ). This same visual equation can help students understand how leaders can influence motivation in their subordinates; how leaders can impact equity. For example, if inequity exists, leaders may require subordinates to reduce personal inputs, or they may adjust the outcomes. They might also counsel their subordinates to change their comparison points (e.g. a low-level worker should not compare herself to a senior VP with 12+ years of experience).

Expectancy : Is the individual properly trained and do they possess the necessary resources to effectively do the job?

Instrumentality : Does the individual trust that they’ll receive what they were promised if they do what they were asked?

Valence : Does the individual value the reward they were promised ( Kanfer & Ryan, 2018 )?

In this exercise, we use a mini basketball game in class to teach students about both Adams’ equity theory and Vroom’s expectancy theory. Using the game in class ensures students have a common context through which to apply and understand these two theories of work motivation. As noted by Stecher & Rosse (2007) , both theories offer compatible frameworks for understanding work motivation, yet they are most often taught as distinct non-related theories. We find that teaching these two theories using the same experiential exercise helps students understand the complexities of motivation. Specifically, this exercise helps students understand how multiple theories can explain motivation issues for the same situation.

Learning objectives

understand the complexity of motivation and its impact on performance;

explain differences in an individual’s motivation and behavior as a function of common psychological forces experienced by people; and

apply knowledge of work motivation theories to address issues of motivation.

Target audience.

This exercise is designed for undergraduate students in introductory courses in leadership, management, human resource management or organizational behavior – wherever theories of work motivation are covered. This approach has been used for over a decade teaching college juniors and seniors in a leadership course. While the approach has not been used to teach graduate students, there is no reason to believe it would not be an effective means for teaching those enrolled in an MBA program.

Class size.

The exercise has been used in classes ranging from 15 to 36 students. As participation by multiple students positively impacts the class, it is recommended the exercise be used for smaller classes. Time could become a factor in larger classes. Furthermore, space could prove a limiting factor in larger classes as some room is needed to set up the game.

Supplies needed.

mini basketball hoop and mini basketball (a trash can and wadded up paper can work if you do not have access to a small hoop and ball);

means for keeping time (stopwatch, wristwatch or wall clock with a second hand);

painter’s tape or note cards to annotate shot positions on the floor in the classroom;

one bag of miniature candy bars; and

slides of equity and expectancy theory to assist in de-brief ( Appendix 1 ).

This exercise as described can be completed in a single 75-min class session. If less time is available, we recommend instructors teach only one of the theories as outlined in this article (conduct only one of the two rounds of the game), covering the other theory during another class period.

a brief overview of work motivation by the instructor (via short lecture or through soliciting input from students to gauge the level of preparation) (10 min);

the first round of the game (10 min);

de-brief and application of equity theory (10 min);

the second round of the game (10 min);

de-brief and application of expectancy theory (10 min);

small group discussion on the future application of theories (15 min); and

structured de-brief of group discussions (10 min).

Student preparation before class.

It is recommended that instructors assign students readings focused on work motivation in advance of the class. A large number of organizational behavior or management textbooks contain chapters on this topic. At a minimum, the assigned reading should cover equity and expectancy theories.

Instructor preparation and classroom setup.

Instructors should set up the classroom with supplies they obtained before beginning class. A visual example of the classroom setup for Rounds 1 and 2 of the exercise can be found in Appendix 2 . The mini-basketball hoop should be located in front of the classroom where all the students can see it. Depending on the size/shape of the classroom, the shooting positions for Rounds 1 and 2 of the exercise can be placed in any location. The shooting position for Round 1 should be a moderately difficult shot, perhaps two to three steps away from the basket. Mark the position with tape or a notecard.

Round 2 requires three different shooting positions. Each position should be marked with tape or a notecard. The first position is the “easy” shot. It should be very close to the basket (1-2 steps in front of the basket). The purpose of this first position is to create the opportunity for a shot that the average person would have lots of confidence in making (high expectancy). The second position should be further away (six to eight steps away from the basket) and potentially behind a row of desks for some added difficulty. The purpose of this second position is to create a shot of medium level difficulty where students are not completely confident (lower expectancy) that they will be able to make it. The third position should be the hardest shot that you can create while still leaving a very small possibility of the shot being made (lowest expectancy). It is recommended you make the student stand outside of a doorway so that they have to shoot a strange trajectory. If your classroom space is not big enough to support making a shot position that is far away from the basket, you can instead add difficulty by requiring the student to wear a blindfold or to shoot backwards. For the positions needed for Round 2 of the exercise, instructors should test the positions and ensure the three different locations are of varying difficulty and that the third position is an extremely difficult (almost impossible) shot to make.

Running the exercise

Introduction to motivational theories (10 min).

Given the number of motivational theories that exist in the academic world, we find it helpful to acknowledge this initially with students to highlight the overall complexity of the topic. In this introduction, instructors can briefly highlight the variety of motivational theories that exist (e.g. expectancy, equity, Maslow’s hierarchy of needs, self-determination theory, goal setting theory, Herzberg’s motivation-hygiene theory, job characteristics theory, etc.). This can be done in any number of ways – asking students to list and/or briefly describe the various theories covered in their assigned reading, etc. Teachers should tailor this introduction based on their specific situation (e.g. the content of assigned reading, length of class, etc.). After talking through the variety of theories that exist, it is important to highlight to students that these theories should be viewed more as a conceptual toolbox for them to use in different situations as opposed to viewing all of these theories as a group of non-congruent viewpoints all competing to be the truest ( Anderson, 2007 ).

After a brief review of the assigned reading(s), instructors can tell students that they are going to play a game to apply what they have learned.

Round 1 of the game (10 min)

Ask all of the students to stand up and tell them to stretch out, limber up, and get prepared for a mini-basketball competition. During this session, the instructor will provide students with an exciting and competitive experience to which they can apply the concepts of Adams’ Equity Theory.

Divide students into four even teams. Have students move around and sit with their team as a group. Explain that Team 1 will compete against Team 2 in a basketball shootout. Establish an incentive of your choice – candy often works well. Show this incentive to the students. Now call Team 1 and Team 2 up to the front of the class and instruct them that:

[…] you can take as many shots as you want at the hoop in 60 seconds, but everybody in your team needs to shoot at least once. The team that ends up with the most baskets made will win. Team 1, you will go first.

Use a stopwatch or watch with a second hand to keep time and instruct members of the opposing team to keep score.

Once Team 1 completes their turn, record their score and call Team 2 forward. Before allowing Team 2 to start their turn, move the shooting spot three paces further away from the basket (move the tape or notecard back three paces).

You will likely experience negative feedback from Team 2 after moving the basket. Common responses include, “this isn’t fair.” Pay close attention to the complaints that they use, these are often very useful to bring up during the discussion portion of the exercise. You might respond lightheartedly with “life isn’t fair” or “what, are you scared?” Allow Team 2 to complete their turn, paying close attention to their affect and comments. If done correctly, Team 2 should lose to Team 1. Congratulate Team 1 on their excellent performance and give each member of Team 1 their prize (a small candy bar works well) and have both Teams 1 and 2 return to their seats.

Now call Team 3 forward. Instruct them that will have 60 s to shoot from the same spot that Team 2 shot from. Keep time and have a member from Team 4 count the baskets. When time is up, record the score. Now call Team 4 forward. Have them shoot from the same spot Team 3 did. Start the clock. However, do not stop the team from shooting after 60 s. Let them continue to shoot for an additional 30 s – or longer – until you hear the members of Teams 1, 2 and 3 start questioning how much time Team 4 is getting to shoot. Record the number of shots made. Team 4 should beat Team 3. Congratulate team 4. Do NOT give Team 4 any candy for winning. Have Teams 3 and 4 return to their seats.

Round 1 de-brief and application of equity theory (10 min)

This is where the instructor begins to apply Adams’ equity theory to the scenario. Ask students if anyone is feeling unsatisfied or unmotivated. You should have several hands go up. If not, remind them of the negative comments you heard during the game – calling on students by name if necessary. Now start to inquire as to why people said what they did.

At this point, the instructor should put up the slide with Adams’ equity theory on it ( Appendix 1 ) and ask students to explain what happened using the equation on the slide. The class should point out several areas where “the equation does not balance.” For example, the inputs for Team 1 were less than the input for Team 2. Team 2 had a harder shot and, therefore, had to provide more inputs (work harder). Students should also point out that the outputs were not even. Team 4 beat Team 3 (just as Team 1 beat Team 2), but Team 4 did not receive the same outcome/reward. Less clear is the factor of Team 4 having more time than Team 3. Ask students how this factor impacts motivation using equity theory.

Pass out candy to all members of the class – to reduce feelings of inequity. Keep three pieces of candy for Round 2.

Round 2 of the game (10 min)

Now tell the class that you are going to ask for three volunteers. Inform the class that if they volunteer and are selected, they have a choice to make – they must choose one of three shooting/prize positions.

Shooting Position #1. Tell the students that if they choose shooting position #1, they get to shoot from the closest spot (and show them where it is). Let them know that they can take three practice shots and that for making a basket, they will receive a piece of candy.

Shooting Position #2. Tell students if they choose this option, they get to shoot from the spot of moderate difficulty and show them where it is. Let them know they get one practice shot and that their prize for making the basket is something of medium desirability – perhaps lunch paid for by the instructor at a local moderately priced restaurant of the student’s choice.

Shooting Position #3. Tell students that if they choose this option, they get to shoot from the most difficult spot and show them where it is. Tell them that they do not get any practice shots from this location. Promise an extremely desirable reward (high valence) and also something that the students may question whether you have the power to give it to them (low instrumentality). A great example is offering them the ability to get out of having to do a major course requirement such as a capstone project or thesis paper. You could also offer something like getting to park in the Dean’s parking spot for the rest of the semester. The creativity behind choosing this third reward is that you want to find the balance of a reward that is extremely high in desirability, but also something that in hindsight students should realize was probably outside of your ability to deliver on that reward (low instrumentality). By creating a reward that is somewhat unrealistic for shooting position #3, the instructor will allow for a follow-on discussion about the power of instrumentality in Vroom’s expectancy theory. If a student questions whether or not they will receive the reward by meeting the performance outcome (making the shot), then their instrumentality will be lower which may alter the position they select to shoot from.

Now that all three shooting positions have been described, pick three volunteers at random and have them come to the front of the room. Ask the first student what option she would like to choose and have her take the shot. Repeat for the second and third students (students can all shoot from the same spot if they desire). After the final volunteer chooses the shooting position and takes the shot, have students return to their seats and prepare for the de-brief.

Round 2 de-brief and application of expectancy theory (10 min).

After the volunteers have returned to their seats, the instructor can display the Vroom’s expectancy theory slide ( Appendix 1 ) to begin shaping the class conversation in terms of Vroom’s expectancy theory.

Individual behavior = the physical act of shooting the basketball;

Performance outcome = making the basketball in the hoop; and

Reward outcome = the prize received based on making the shot from the shooting position the student chose.

Next, ask the students to break down each of the three options in terms of expectancy, instrumentality and valence . The following should come out in the discussion:

Expectancy – Shooting position #1 has the highest expectancy of all three positions. Self-efficacy is increased through multiple practice shots and the close distance makes the shot seem achievable.

Instrumentality – Shooting position #1 should have a high level of instrumentality. Students know you have the candy bar and that you delivered on what you promised during round 1. Therefore, it is likely they trust and believe they will receive the reward candy bar for achieving the performance outcome of making the shot.

Valence – Shooting position #1 likely has the lowest valence of all three positions in terms of overall value. However, valence could run from low to high depending on individual preference. The candy bar may have lower valence if students do not like the particular candy bar.

Expectancy – Lower than shooting position #1 because the shot is more difficult, and the student only gets one practice shot. However, the expectancy of shooting position #2 is still greater than shooting position #3 because the shot is easier and the student still receives a practice shot which raises the student’s confidence in their ability to achieve the performance outcome of making the shot.

Instrumentality – Lower than shooting position #1, but higher than shooting position #3. There might be some trust issues related to whether the students will receive the lunch. As the student does not immediately get the reward of the free lunch by achieving the performance outcome of making the shot, the instrumentality may be low. The instrumentality should still be higher than shooting position #3 because the student should have more trust that the instructor will buy them lunch as compared to not having to write the final paper for the class.

Valence – Should be higher than position 1 since lunch is more expensive than just a candy bar. However, individual preferences again may vary depending on if the students have free time in their schedule or if they would even like to have lunch with their professor.

Expectancy – The lowest of all three positions as there is no practice shot and the difficulty of the shot is so high that students do not really believe that they will be able to make the shot.

Instrumentality – Should be the lowest of all three positions as the reward may seem so great that some students will doubt if the instructor will follow through on giving the reward, or if they even have the power to give out the reward. But this may not be rated by students as low initially.

Valence – The highest of all three positions. The reward of not having to write a final paper, or some other exclusive reward (parking in the Dean’s parking spot) should be viewed as extremely appealing to most students given the high value they place on their time in a busy college schedule.

After going through each of the shooting positions, have the non-participating students in the classroom evaluate the multiplicative factors for each shooting position and ask them if it makes sense why each student chose to shoot from where they did.

Small group discussion on the future application of theories (15 min)

After students have had a chance to run through both games as well as the de-brief for each exercise, it is now time to turn the discussion toward an application of both theories to future leadership situations. Break students back out into the teams they were on for the Adams’ equity theory portion of the class. Instruct the groups they will have 15 min to talk amongst themselves to brainstorm examples of personal experiences or potential future scenarios where they can apply Adams’ equity theory and Vroom’s expectancy theory. Examples that often come up range from peers on group projects receiving the same reward/recognition even though they contributed less, gender discrepancies in pay or promotion, poor incentive systems, etc.

Structured de-brief of group discussion (10 min)

Spend the last 10 min of this class asking each group of the teams to share an example they discussed within their small group. Ensure that you press the students to use the correct terminology when talking about their examples through the lens of either Adams’ equity theory or Vroom’s expectancy theory and ask them how they might positively impact motivation in the scenario they discussed.

Potential challenges.

Challenge : The instructor does not properly manage time for a thorough debrief of each exercise

09:30-09:40. A brief overview of work motivation theories;

09:40-09:50. The first round of the game (Adams’ equity theory);

09:50-10:00. De-brief round one exercise and apply Adams’ equity theory;

10:00-10:10. The second round of the game (Vroom’s expectancy theory);

10:10-10:20. De-brief round two exercise and apply Vroom-s expectancy theory;

10:20-10:35. Small group discussion on the future application of theories; and

10:35-10:45. Structured de-brief of group discussions.

Challenge: A student manages to make the impossible shot

Solution: In the event that a student does make the nearly impossible shot from shooting position #3 (this did happen in one instance and it turned into a viral Instagram video with over 20,000 views) then the instructor needs to be prepared to not follow through on the reward. Instead, the instructor should discuss the concept of instrumentality and how the trust between a leader and their direct reports is essential to ensuring positive motivation in the workplace. This is why it is important that the reward for shooting position #3 is somewhat unbelievable in the first place because it will allow for a great discussion on instrumentality and the belief that achieving a performance outcome will lead to a given reward. The instructor can begin by polling the students to see how many of them completely believed that the reward for shooting position #3 was realistic and attainable. Through this discussion, the instructor can highlight what happens to motivation when managers create extremely difficult goals (low expectancy) with extremely valuable rewards (high valence) to try and motivate their workers. This also provides a strong example to the students of what happens to trust when a leader fails to follow through on a promised reward and how that will impact instrumentality and thus motivation in the future.

Challenge: Students may not have real-life examples to discuss in their groups.

Solution. If group discussion is lagging, the teacher can suggest situations that students may have experienced or direct them to use the internet to find examples and to discuss those instances.

This experiential exercise has proven useful over the past 10 years in providing an introductory look at the complexity of workplace theories of motivation. In semester-end student feedback, this class has been mentioned numerous times as one of the most impactful lessons of the course. Multiple students have commented on the effectiveness of the hands-on exercise in creating a memorable point of reference that makes it easier to retain class learning concepts. In fact, the most recent end of course feedback over one-third of students cited this lesson as the most memorable of the 30-lesson course. Additionally, the in-class exercise provides a common context for students with varying experiences to engage with and allows for the introduction and application of two of the major theories of motivation. Furthermore, the fun, competitive format generates interest and excitement. Note, we have also used miniature golf instead of basketball to teach each theory – having students putt with different equipment, from different distances, and for different prizes. For a brief overview on the setup using mini-golf, please see Appendix 3 . We encourage faculty to have fun with the exercise – it is not just for the students!

Adams’ equity theory

Vroom’s expectancy theory

Setup for Round #1 – Adams’ equity theory

Setup for Round #2 – Vroom’s expectancy theory

Setup for Vroom’s expectancy theory using mini-golf

Appendix 1. Sample slides for use in de-briefing

Appendix 2. sample classroom setups for rounds 1 and 2, appendix 3. instructions for use of mini-golf instead of basketball.

If the classroom does not allow for the setup of the three different shooting positions for the basketball exercise, then it is easy to replace the basketball exercise with a mini-golf option. Below is a brief highlight of the differences in classroom setup for the golf exercise.

putter, golf ball and plastic solo cup;

painter’s tape or note cards to annotate shot positions on the floor in the classroom; and

bag of miniature candy bars.

Round 1 Exercise (Adams’ equity theory)

There are no major changes needed for this round. Simply follow the same instructions for Round 1 of the basketball exercise, except instead of basketball shots replace that with made putts into the solo cup. This will still allow for the same comparison and perceived inequities amongst the four teams that will create a rich discussion on Adams’ equity theory.

Round 2 Exercise (Vroom’s expectancy theory)

Again, there are no major changes needed for this round, other than just replacing the concept of a made basketball shot with a made putt. Below is an example of the three putting positions and how you can still create a similar scenario to the basketball exercise in terms of expectancy , instrumentality and valence for each putting position.

Putting Position #1: Create a short two-foot putt that is fairly easy to make. Allow the student to have three practice putts. This creates an option with high expectancy (an easy putt with practice shots), high instrumentality (the student believes that if they make the putt, they will receive the candy) and low valence (candy is not as valuable as lunch or getting out of writing a final paper).

Putting Position #2: Create a six-foot putt that is not straight on but instead is at a slight angle to the cup so that it is more difficult to make. Allow the student to have only one practice putt. This creates an option with a medium level of expectancy (a slightly more difficult putt), a medium level of instrumentality (the student has to trust that you will actually buy them lunch at some point in the future) and a medium level of valence (the lunch is greater than the candy bar, but most likely not as valuable as not writing the final paper).

Putting Position #3: Create the longest most difficult putt that your classroom will allow. Additionally, tell the students they will receive no practice putts and they will have to putt with the handle end of the putter. This creates an option with a very low level of expectancy (students will have a very low level of belief that they can make the putt given both the distance and the fact that they have to putt with the handle), a low level of instrumentality (again the reward should be so valuable that some students will doubt the reality of actually receiving the reward) and a very high level of valence (the reward should be extremely desirable).

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Modelling the Interaction Between Incumbents and New Entrants with a Game Theory Approach: A Case Study of Public Transportation

• Original Research
• Open access
• Published: 22 September 2024
• Volume 5 , article number  895 , ( 2024 )

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• Ali Amiramini Kahrizeh 1 ,
• Amir Karbassi Yazdi 2 ,
• Peter Wanke 3 ,
• Yong Tan 4 &
• Thomas Hanne 5  

The transformative influence of new entrants on industries and heightened competition underscores their significance. Mature companies, threatened by their entry, deploy multiple incentives to forestall market penetration. Conversely, consumers embrace fresh participants, creating a dichotomy in reactions. This has spawned escalated conflicts between mature firms and newcomers, rooted in the latter's market entry. This study navigates this landscape by delving into the strategies, preferences, and priorities of these actors, seeking stable equilibrium and reconciliation points for these conflicts. Employing thematic analysis, it distills options, feasible scenarios, and relative preferences of each stakeholder. These insights undergo scrutiny via the GMCR + decision support model. Among 21 conceivable scenarios, the study unveils three equilibria and a semi-stable state, suggesting mature companies recalibrate their stance to explore synergies with new entrants. This research offers a panoramic perspective on the intricate interactions between mature companies and new entrants, transcending the narrow confines of entry barriers.

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Introduction

Several industries have been affected by the growth of the "sharing economy," most notably hotels (Airbnb) and taxis (Uber, Lyft, and Sidecar) [ 36 ]. Today's socio-economic and environmental problems can be solved through the sharing economy. Even so, some are skeptical about the tangible benefits of the sharing economy for society [ 19 ]. The disruptive nature of the sharing economy has posed significant challenges for incumbent players [ 8 ]. There is a belief that this business model will threaten incumbents across the economy [ 36 ]. Existing firms, often referred to as incumbents or incumbent firms, have adapted or developed their own innovations to address disruptions caused by new market entrants, new technologies, or changes in consumer behavior [ 39 ].

A disruptive business model based on technological innovation leaves incumbent firms with two options to fend off new entrants: strengthening their existing business model or adopting the new business model exclusively [ 26 ]. Uber's impact on existing businesses remains a contentious issue. Is the disruption that the sharing economy will bring to society a genuine threat to incumbents, or is it being overestimated? [ 19 ]. Apart from this debate, several countries have suspended Uber's operations, and concerns about security and safety mechanisms for accommodation-sharing businesses have cast doubt on the growth potential of this economy [ 36 ].

Are traditional jobs threatened by the expansion of the "sharing economy"? In recent years, this debate has revolved around taxi services, where digital platforms such as Uber have intensified competition. Uber does not own any cars; rather, it matches passengers with self-employed drivers and profits from each ride by taking a cut. Few inventions have generated more controversy since their inception in 2010. In Europe, taxi drivers have protested, and courts have either banned or restricted its usage. The number of drivers partnering with Uber has surged in the U.S. [ 3 ]. In Iran's taxi industry, following Uber's business model and innovating in its position, led to a transformation in the taxi industry's business model. This coincided with the development of internet infrastructure and resulted in increased user acceptance due to enhanced security, reliability, and accessibility. Taxi drivers suddenly faced reduced profits and a saturated market that disrupted their monopoly, causing conflicts with newcomers. One of the most contentious cases has been taxi drivers' complaints against internet-based taxis. Taxi drivers have cited various reasons to oppose the launch of these technological platforms. According to industry officials and drivers, these internet-based transportation platforms have disrupted market order and harmed their business by illegitimately lowering fares. An alternative approach to the interaction between incumbents and new entrants might involve designing a conflict resolution model instead of solely focusing on price and non-price mechanisms.

The strategic behavior of a decision-maker (DM) in a conflict will influence the strategic behavior of other DMs based on their interests. To resolve conflicts and promote cooperation, it is essential to accurately identify the interests of DMs and to simulate the dynamic evolution of decision-making behaviors [ 24 ]. The use of game theory to resolve conflicts over complex environmental issues among multiple DMs allows for a more realistic simulation of stakeholders' interest-based decision-making behavior [ 9 ].

A longstanding research topic in economics literature is the evaluation of the impacts on incumbents of potential or actual competition. Studies by Chang & Sokol [ 5 ] primarily focus on the effects of entry on incumbents' business outcomes, often considering revenues or profits. Recent research has examined how emerging business models of disruptive innovation, such as Uber's impact on taxi drivers [ 3 ], 4 , 7 , 19 or Airbnb's impact on hotels [ 38 , 40 ], affect incumbents in traditional markets. These papers predominantly discuss the impact of disruptive innovators on revenues and incumbents' price responses. However, the conflict between incumbents and new entrants has not been addressed in previous articles. Therefore, this article identifies DMs and their decision sets, determines all feasible states, illustrates possible state transitions using a graph model, ranks relative preferences, identifies equilibrium points, and provides strategic guidance for resolving transboundary conflicts. As a result, this study aims to identify strategies, guidelines, and appropriate policies to resolve this conflict.

This paper contributes to previous studies and offers several significant insights. From a managerial and policy perspective, it examines how incumbents can respond to the disruption caused by the sharing economy. Furthermore, it analyzes incumbents' strategies in response to the entry of a disruptive innovator using GMCR (Graph Model for Conflict Resolution). Notably, there have been no previous studies using GMCR in this context. The paper makes various important contributions to the existing literature. It provides managerial and policy implications on how incumbents affected by the disruption of the sharing economy should respond. Additionally, it explores the strategies of incumbents in response to the entry of a disruptive innovator using GMCR, marking one of the few studies to utilize GMCR in this area. Given that most of the industry is under government control, this research aims to determine whether government intervention is beneficial for the industry. Specifically, it investigates whether government intervention in balancing different types of taxi services is advantageous, or if the market should determine pricing and competitiveness. This research provides insights into the effectiveness of government intervention versus market-driven approaches by comparing countries that regulate prices with those that allow the market to set them.

The paper is structured into five parts. After the introduction in Section One, which outlines the contributions, research objectives, and research gap, Section Two presents the literature review, highlighting previous research. Part Three illustrates the models and research procedure. Part Four delves into data analysis, covering modeling, actors and their possible options, extraction and refinement of feasible situations, preferences and prioritization of actors, model analysis, equilibrium points, and analysis of one-sided movements of actors, along with coalition analysis. The final part, Part Five, engages in a discussion and conclusion, summarizing the research's results.

Literature Review

This research is centered around the competition between New Entrants and Incumbents. The relevant literature is discussed below to clarify our contribution. The competition between New Entrants and incumbents has captured the attention of numerous scholars. For instance, Chang and Sokol [ 5 ] evaluated the strategies of incumbent hotels in response to Airbnb's entry, examining both price and non-price responses. The authors employed a fixed-effect model to estimate variables such as hotel occupancy rate, price, investment in service quality, and hotel revenues. Results indicated that low-quality hotels engage in price competition with Airbnb, while premium hotels may opt to differentiate their products, attract end customers, and charge higher prices. Berger et al. [ 3 ] documented the effects of Uber on the employment and earnings of taxi drivers in U.S. cities. Their findings revealed that the labor supply of self-employed taxi drivers increased by nearly 50 percent on average following Uber's introduction. Kim et al. [ 19 ] provided insights into how Uber transformed the traditional taxi industry in New York. Through a time-series regression model, they examined variables such as the number of taxi trips, the average daily revenue of taxi drivers, and occupancy rates. The results demonstrated that incumbent taxi drivers proactively responded to the disruptive threat posed by Uber's entry, resulting in significant benefits for consumers who could now hail taxis from a broader area in New York.

Ren et al. [ 29 ] delved into the strategies incumbents adopt in response to a primary rival's exit. They considered variables such as product variety at each store and market structures. Their formal model and empirical study revealed that after the exit of a rival, the survivor aims to expand both its product and geographic presence by increasing store-level product variety and opening new stores. This expansion strategy involves simultaneously filling market gaps and preempting attractive locations to discourage potential new entrants. Du et al. [ 10 ] introduced a strategic mental model to analytically characterize the effects of incumbent repositioning costs and decision biases on firms' equilibrium strategies and profits. Their findings indicated that while biases are detrimental for firms individually, both the entrant and incumbent can achieve higher profits when biased, compared to when neither party is biased. Specifically, if the entrant is biased in estimating the incumbent's repositioning ability and the incumbent is aware of this bias, the entrant's performance is negatively impacted.

Islami et al. [ 18 ] examined the relationship between industry barriers that hinder new entrants entering a competitive market and the increased profitability of incumbents. Variables considered in the study included economies of scale, product differentiation of incumbents, capital requirements of non-incumbents, switching costs, access to distribution channels, cost disadvantages independent of size, government policy, and the profitability of incumbents. The findings indicated that industry barriers contribute to increased profitability for incumbents and act as obstacles for potential rivals entering the market. Whelan [ 37 ] extended the entry deterrence literature by investigating the coordination of advertising and pricing in markets with consumption externalities, utilizing a stochastic success function. The findings revealed that the fixed cost of entry that challengers must bear and the consumption externality parameter influences an incumbent's ability to deter entry through coordinated advertising.

Chang and Sokol [ 5 ] utilize the number of Airbnb listings in the Taiwanese market to examine the price and non-price responses by hotels within the framework of traditional industrial organization. Similarly, Zervas et al. [ 40 ] explore Airbnb’s staggered entries into Texas and their impact on hotel prices. Farronato and Fradkin [ 13 ] structurally estimate the parameters of a model of consumer utility and supplier costs following Airbnb’s entry into 46 cities in the United States. In their 2011 publication, Yan and Guizani discuss various theoretical methods and provide examples commonly employed in this area of research. Rahman et al. [ 28 ] propose an MEC-based sharing economy system that utilizes Blockchain and off-chain frameworks for the storage of immutable ledgers. By utilizing the AI infrastructure we propose, a future smart city can offer cyber-physical sharing economy services through the use of IoT data. The use of smart contracts enables the framework to provide intricate spatio-temporal services worldwide, eliminating the need for a central verification authority. During the Hajj in both 2019 and 2020, we envision comprehensive testing of different sharing economy scenarios on a large scale.

Zhang et al. [ 42 ] apply the existing institutional legitimacy literature to gain insights into the intricate process of forming new institutional legitimacy within the context of a disruptive sharing economy. The primary objective of their study is to develop a comprehensive framework to elucidate the myriad factors involved in shaping and influencing the process of legitimacy formation. To investigate the institutional legitimacy issues associated with Uber, a leading tech start-up in the sharing economy, we applied deep-learning techniques to news articles published between 2009 and 2016. The initial results indicate that the legitimacy of sharing economy disruption is not constant and varies depending on the time frame and geographical region. Zhou and Wan [ 43 ] conducted a study to examine the extent of the disruptive power that the mobile digital sharing economy has on the road freight logistics industry. The advent of new information technologies, including the mobile internet, mobile payment methods, and GPS, has revolutionized the way platforms operate. These technologies allow platforms to effortlessly connect freight shippers with carriers, leveraging the convenience and mobility offered by smartphones.

In our study, we conduct empirical research to examine the impact of the emergence of mobile digital freight matching platforms in the United States on the profitability and stock performance of two specific types of incumbent road freight logistics companies: freight arrangement companies (including freight forwarders and brokers) and trucking companies (including freight carriers). Since mobile digital freight matching platforms primarily connect small and mid-sized trucking companies with shipping demand, it is anticipated that these platforms will bring direct competition to traditional freight arrangement companies and indirect competition to large trucking companies. This, in turn, may pose operational challenges for both types of established companies. Si et al. [ 32 ] explore the connection between disruptive innovation and the sharing economy. They aim to comprehensively examine the intricate mechanisms underlying a business project centered around disruptive innovation and its ability to successfully generate, distribute, and acquire value within the context of the sharing economy. The focus of their analysis is on the specific case of bike sharing in China. By utilizing an elaborate case study, they comprehensively explore the process, underlying mechanisms, and relationships among disruptive innovation, business models, bike-sharing businesses, and value creation in the sharing economy. The concept of bike sharing is a perfect fit for the theory of disruptive innovation. Its combination of affordability and exceptional convenience has resulted in swift growth and progress in China. The failures of bike-sharing companies can be attributed to their lack of improvement in products and services, as well as their inability to establish a successful business model that effectively creates, delivers, and captures value. Various factors have impeded the sustainable development of bike-sharing companies, including strategic decision-making, internal management problems, external conflicts, and uncivilized consumer behaviors. These methods include cooperative games, Nash equilibria, and allocation games, which explore the dynamics of competition versus cooperation. For a comprehensive overview of the previous research in this area, please refer to Table  1 .

Research Methodology

Due to the complexity and multifaceted nature of the problem, the chosen approach in this research is the method of constructing the problem. The problem structuring method is a novel approach within operations research [ 22 ] that serves to address complex problems. This method empowers actors to unveil the problem's structure, identify potential outcomes and consequences for each decision, and understand the responsibilities and implications of subsequent choices [ 25 ]. Within the realm of problem structuring methods, various tools and techniques exist, one of which is game theory. Among these methods, one of the most prominent is [ 11 ].

Game theory is a discipline that investigates human decision-making within situations of interaction or conflicts of interest with others. In essence, game theory delves into the study of conflicts and cooperation among rational players [ 16 ]. The theory revolves around examining the strategic interactions and collective decisions of multiple actors, yielding outcomes that might not have been intended by any single participant. Game theory's applications include explaining events as games, predicting game outcomes, or offering recommendations for achieving improved results [ 27 ]. In this study, game theory is employed to elucidate the problem and address the posed questions, aligning with the nature of the stakeholders' issue.

With the proliferation of conflicts in both number and diversity, various models have emerged within the realm of game theory. Depending on factors such as the number of participants, the available choices, and whether actors' preferences are quantifiable or relative, these models fall into two categories: quantitative methods (numeric preferences) and non-quantitative methods (relative preferences) [ 2 ]. Traditional game theory models such as normal or extended forms are employed for game modeling and analysis [ 34 ]. However, real-world decision-makers and their choices typically exhibit significant diversity, and preferences often tend to be qualitative and relative. As a result, for scenarios of this kind, classical models used in quantitative methods may not effectively analyze the situation. Thus, non-quantitative methods are harnessed for game modeling and analysis in such contexts [ 2 ].

In the current problem, given the significant number of actors and the extensive array of options at their disposal, coupled with the challenge of unquantifiable actor preferences, the utilization of the graph model is better suited to elucidate the problem. This model presents a comprehensive approach aimed at analyzing strategic conflicts in the real world. Each strategic conflict is viewed as a decision-making issue wherein diverse scenarios and situations encompass distinct preferences for each decision-maker [ 33 ]. To this end, the GMCR + software has been employed to model and analyze game outcomes based on the graph model. The requisite data for the problem were amassed from documents, articles, reports, and news articles from various news agencies. Using the content analysis method, the options available to each actor, potential situations, and the relative preferences of each actor were extracted. Content analysis stands as a systematic technique for dissecting text-based information in a standardized manner, enabling researchers to derive insights from textual data [ 35 ].

In the initial phase of this study, gather qualitative information by conducting stakeholder surveys, expert interviews, reviewing scholarly articles, and analyzing industry reports. To gain a thorough understanding of market dynamics, it is imperative to employ a wide variety of sources. For the development of scenarios and the analysis of GMCR + , create comprehensive scenarios based on the designated themes. The GMCR + model should be utilized to simulate a range of strategic interactions and conflicts. Analyzing the scenarios allows for the identification of both stable equilibria and semi-stable states. Take the time to understand and evaluate the findings from the GMCR + analysis. Present practical strategies for established businesses to reevaluate and refine their approaches, and assess potential intersections and opportunities for cooperation with recent arrivals.

The steps involved in modeling this problem align with the graph-based approach. Adhering to the definitions and concepts elucidated within the graph model, the conflict between established and newcomer companies is framed as a game. Commencing with the delineation of the actors and their respective strategies, the process filters out infeasible combinations, eventually revealing actor preferences. The analysis subsequently delves into stable scenarios, equilibrium points, coalitions, and a multi-faceted resolution of results. Figure  2 visually outlines the modeling and analysis process for the conflict within the graph framework. GMCR's process of conflict modeling and analysis encompasses two core stages: modeling and analysis [ 17 ]. In the initial stage, through an examination of conflict history and, if necessary, consultations with experts, actors, and their forthcoming choices—encompassing an array of players' selections and strategies—are defined [ 23 ]. Post-identification of the actors and their available options, potential conflict scenarios are established.

The total number of conflict scenarios is determined using the formula 2n, where n represents the overall count of potential options across all actors. Notably, not all conceivable situations are viable. To ascertain possible situations, those that lack practical feasibility are excluded from the scenario set. An essential consideration is that while the actors' potential options may not inherently align with their interests, achieving equilibrium necessitates their inclusion. The identification of such situations can be achieved through three methods: detecting two mutually exclusive pairs, identifying the presence of at least one option, and recognizing interdependencies between the options. Once potential conflict scenarios are determined, they are prioritized using various methodologies such as option weighting, option prioritization, and direct ranking [ 6 ].

The second phase in graph models involves determining equilibrium states and analyzing the resulting outcomes. Equilibrium states signify the most probable potential resolutions of the conflict and do not inherently imply fairness or optimality for all participants. In essence, equilibrium isn't necessarily the most advantageous point for everyone; rather, it's a circumstance where an actor lacks motivation to depart from. An actor's decision to remain in or leave a situation unilaterally hinges on various factors, such as their propensity for risk-taking or risk-aversion, as well as the depth of their understanding of other participants. With this perspective, several solution concepts, which are various approaches to check the stability of each actor, have been proposed. Noteworthy among these concepts are:

Nash Stability : This concept signifies a scenario where a given actor cannot improve their situation unilaterally, assuming the strategies of other actors remain unchanged [ 1 ].

Beyond General Rationality : In this approach, an actor considers not only their own unilateral improvement options but also accounts for other actors. They decide to shift their situation only if their move wouldn't enable competitors to transition them into a worse state [ 14 ].

Beyond Symmetric Rationality : Here, it's assumed that the actor can respond after their competitors. Sustainability aligned with symmetric rationality implies that an actor doesn't gain from any unilateral improvements, as each of their moves is countered by rivals, leaving them no better off [ 14 ].

Consecutive Stability : In this context, when the situation evolves, the actor views competitors as rational entities and, beyond contemplating their unilateral improvements, also considers their own move. Sequential stability indicates a situation where an individual's unilateral enhancements are counteracted by at least one rival's unilateral improvement [ 15 ].

Constrained Movement Stability : An actor envisions h steps into the future [ 14 ].

Far-Sighted Stability : A specific state within limited movement stability wherein the parameter h approaches infinity. An actor embracing foresight stability has an extensive horizon when deciding to maintain their current situation or transition to a new one [ 21 ]. Each definition of stability characterizes a distinct type of behavioral trait. Consequently, each participant can be stable within any given scenario based on one or more solution concepts, depending on their own behavioral characteristics. Table 2 elucidates the diverse sustainability concepts along with the associated behavioral attributes for each concept. Figure  1 visually outlines the research process.

Research procedure (Authors made)

Table 2 illustrates how diverse solution concepts can analyze various actors with distinct behavioral traits, encompassing a range from cautious and conservative individuals to strategic and active participants, as well as those with forward-looking perspectives and those with shorter-term views. If a situation is deemed stable for all decision-makers according to one or more stability definitions, it is termed an equilibrium point within the game, offering a plausible solution to the conflict. Given that different solution concepts reflect a variety of conceivable behavioral attributes for decision-makers, the more a situation is identified as a point of balance across multiple solution concepts, the higher the likelihood it will be embraced by decision-makers. Consequently, this increased recognition enhances the potential for its practical realization within the real world.

Data Analysis

In this section, according to the steps mentioned in Fig.  2 , we will model and analyze the actors' conflict.

Impossible situations in GMCR + software (Authors made)

The process of conflict modeling and analysis in GMCR encompasses two primary stages of modeling and analysis [ 31 ]. In the initial stage, historical conflict review and, when necessary, consultations with experts and actors, including discussions about their forthcoming options—comprising an array of players' selections and strategies [ 30 ]—inform the process. Post-identification of the actors and their potential options, potential conflict scenarios are pinpointed. The total count of conflict scenarios arises from the formula 2n, where n signifies the overall number of possible options within the entire participant set. It's important to note that not all conceivable situations are feasible. To identify viable situations, those that lack real-world feasibility are culled from the set of scenarios. An essential consideration is that while the feasible options for the actors may not inherently align with their interests, achieving equilibrium remains crucial. These situations can be identified using three methods: identification of two mutually exclusive pairs, recognition of the presence of at least one option, and acknowledgment of interdependencies among the options. After determining feasible conflict scenarios, these situations are prioritized using distinct methodologies such as option weighting, option prioritization, and direct ranking. Within this section, adhering to the aforementioned steps, we proceed to model the conflict between established and newcomer companies.

The GMCR + uses theme analysis ideas innovatively. This combination enables a quantitative examination of qualitative insights, identifying stable equilibria and semi-stable states among plausible possibilities. The report provides a detailed analysis of potential consequences and considers multiple scenarios. The in-depth scenario analysis offers a comprehensive understanding of the competitive environment through a broad spectrum of strategic interactions and possible equilibria. Strategic alignment and conflict resolution offer several avenues for established businesses to adjust their tactics and coexist with new competitors. Market entry research focuses on defensive actions by established corporations.

Groups and Individuals Involved : These are the decision-makers who have conflict strategies and preferences.

Options for Decision-Makers : These are the available choices, which are interchangeable. Decision-makers may reject options. Conflict scenarios or configurations are determined by the choices of the decision-makers. Each scenario represents a conflict situation.

Achievable Situations : These are represented by constraints and option interactions. Desirability determines the ranking of situations for each decision-maker, and preferences can be represented by rankings or utility values.

Feasibility of Transition : This is determined by the constraints dictating the course of conflicts. The possibilities and strategic interactions of decision-makers establish these rules.

Stability Evaluation

We must evaluate the stability of each scenario to identify which ones are likely to last. Well-recognized stability concepts include Nash stability, generic meta-rationality, symmetric meta-rationality, and sequential stability.

Equilibria refer to stable states determined by selected ideas and pertain to the settlement of conflicts. Decision-makers establish alliances to accomplish objectives, examining the influence of coalitions on the dynamics and outcomes of conflicts. The strength of preferences enhances the analysis. Analyzing the progression of conflicts requires studying the modifications that occur over time and the strategic adjustments made by decision-makers.

Actors and Possible Options of Each of Them

In the initial phase, following the methodology outlined in the methodology section, the actors and their corresponding options were identified. While selecting actors and delineating their potential options, it is important to recognize that not all stakeholders play a role in the conflict; those unable to take action are excluded as conflict actors. Conversely, the options available to each actor encompass practical actions that the respective player can implement in reality. These options do not encompass the entirety of an actor's interests. In essence, an actor might be interested in undertaking a specific action but may lack the practical means to execute it. Consequently, this action isn't considered as an option for that actor. The actors were classified into three distinct categories: newcomers, taxi drivers, and the government. This classification is grounded in the distinctive attributes of each actor. Within this study, new entrants are represented by companies, and owing to their analogous upcoming choices, they are grouped under the newcomers category. A mature company, conversely, refers to an established entity currently operational in the industry. In this study, Taxirani serves as a representative example of a mature company. The government, as an entity, bears the responsibility of exercising sovereignty within the realm of policy formulation.

Extraction and Refinement of Feasible Situations

As indicated in Table  3 , a total of 8 options are available to the actors. Considering that each option may or may not be included in the strategy of the corresponding actor, theoretically, 28 or 256 combinations emerge for all conceivable game scenarios. However, it's important to note that not all of these combinations are feasible. Their occurrence in reality is limited, meaning that their realization in actual circumstances is implausible. Factors such as preferences and priorities of the actors contribute to this, making the realization of certain scenarios unlikely. Thus, before proceeding to subsequent stages, it is essential to identify and eliminate impossible scenarios.

These impossible situations are influenced by constraints and limitations that need to be applied to the game. These include:

Existence of at Least One Option : This stipulation mandates that each player must select at least one of their possible actions. For example, newcomers must choose from the options presented in Table  3 .

Two-by-Two Incompatible Options : By implementing this condition, combinations in which certain options cannot coexist are removed from the potential combinations.

Dependency Between Options : This condition introduces conditional relationships where the occurrence or absence of one option depends on the occurrence or absence of other options.

Upon the application of the constraints listed in Table  4 , infeasible combinations are removed, thereby reducing the count of potential situations to 21, as depicted in Table  5 . Each entry in this table signifies a specific situation. Within each situation, an actor's decision to choose an option is denoted by "Y" (Yes), while the absence of a choice is indicated by "N" (No). Figure  2 provides a visualization of the impossible scenarios within the GMCR + software.

Lastly, following the application of the constraints outlined in Table  5 , unviable combinations were eliminated, resulting in a reduction of the potential situations to 21, as outlined in Table  6 . Significantly, this table encapsulates distinct situations. Within each situation, an actor's decision to opt for a specific choice is denoted by "Y" (Yes), while the absence of a choice is marked by "N" (No).

Moving forward in the modeling process, the next step involves determining the potential transitions that each actor can make between various states, with a focus on defining irreversible movements. The nature of reversibility in a movement hinges on the answer to the fundamental question: if an actor transitions from an ideal state A to an ideal state B, is it feasible for them to revert back to state A subsequently? For a visual representation of the actors' reversibility within each option, please refer to Fig.  3 .

Reversibility of actors in each option (Authors made)

Preferences and Prioritization of Actors

The final stage of modeling involves determining feasible priorities and preferences for each actor. In the realm of game theory, multiple methods exist for establishing actors' preferences, encompassing direct ranking, strategy prioritization, and strategy weighting. For this purpose, the option prioritization approach was employed. Data gleaned from document analysis, individual interviews, and group discussions with various stakeholders in the subject were subjected to content analysis. Subsequently, based on this analysis, the political preferences of each participant were deduced, as delineated in Table  6 . Preferences attributed to each actor can be classified as unconditional, conditional, or a combination of both. Unconditional preferences are indicated through connecting terms like "opposite (*)," "conjunction (&)," or "disjunction (or)," whereas conditional preferences are linked through the usage of "if." The policy preferences of the actors, categorized by available options, are illustrated in Tables 6 , 7 , and 8 .

Upon inputting these preferences into the software, the prioritization of prevailing scenarios for all actors across various situations is established in accordance with Table  9 .

Model Analysis

Following the ranking and determination of priorities, and in anticipation of predicting the ultimate outcomes of the game, the model is subjected to analysis. This analysis encompasses stability assessment, examination of unilateral movements by actors, and coalition analysis, and concludes with formulating policy recommendations.

Equilibrium Points

To achieve a state of equilibrium in the conflict, it's necessary to first determine stable states for each actor. A stable state refers to a condition where an actor has no incentive to deviate or leave [ 20 ]. If all actors find themselves in stable states, this collectively constitutes an equilibrium state. The attainment of equilibrium states in the conflict involves different approaches, contingent upon actors' attitudes and perspectives. As revealed by the outcomes in Table  10 , out of the 21 possible states, there exist 3 equilibrium states and one semi-stable state among the actors' various states. This analysis is elaborated as follows:

Situation 14 : According to the Nash, GMR, SMR, SEQ, and SIM logics, detailed features of which are outlined in Table  3 , this represents the equilibrium state of the game. Here, the government amends the legislation for public transportation development while refraining from intervening in setting fare rates for new entrants and taxi companies. Taxi companies, recognizing the existing scenario, choose not to oppose it and instead cooperate with newcomers in aspects related to traffic planning and the initiation of services such as ride requests, cargo transport, parcel delivery, and student transportation. Newcomers, to secure a taxi fleet, contribute 30% of the commission per trip as city fees to the municipality. This state primarily benefits taxi drivers and new companies.

Situation 20 : Similarly, based on Nash, GMR, SMR, SEQ, and SIM logics, this is another equilibrium state in the game. It closely resembles situation 14, with the distinction that taxi companies strive to equalize fare rates while newcomers remain indifferent to innovative technological advancements. This configuration holds substantial priority for taxi drivers and new companies, albeit it may not hold a commensurate priority for the government.

Situation 21 : Aligned with Nash, GMR, SMR, SEQ, and SIM logics, this also marks an equilibrium state in the game. Analogous to situation 20, the difference lies in newcomers actively innovating and developing technological services to enhance passenger and driver safety. Alongside being stable, this situation is recognized as a coalition equilibrium, resulting in an elevated priority for taxi companies. Consequently, this holds high significance for taxi drivers and new companies, while again potentially falling lower on the priority scale for the government.

State 19 : This state is semi-stable, achieving equilibrium solely based on GMR and SEQ logics. Here, the government revises the public transportation development legislation without intervening in fare determination for new entrants and taxi companies. Taxi companies do not raise objections to the existing setup and collaborate with newcomers in aspects pertaining to traffic planning and the inception of services. Within this state, new entrants exhibit indifference towards attracting a taxi fleet. Notably, this situation provides greater benefits to taxi drivers than newcomers and the government.

The outcomes derived from analyzing the stability of potential actor states using the Nash, GMR, SMR, SEQ, and SIM logic calculations demonstrate that in all four equilibrium scenarios, taxi drivers do not oppose the current situation. Instead, they prefer collaborating with newcomers on traffic planning and service initiation for various purposes. Meanwhile, the government refrains from intervening in the fare-setting process for both newcomers and established taxi companies.

Analysis of One-Sided Movements of Actors

Through the assessment of the stability of each actor within the scope of the potential conflict situations, it becomes possible to discern unilateral changes and improvements that actors can achieve. This delineates the capacity of each player to shift the game's outcome from one state to another through individual actions, unilaterally and without relying on the actions of other players. These transformative actions are depicted in both a tree format (Fig.  4 ) and a graph format (Fig.  5 ).

Tree diagram of actors' unilateral movements and improvements (Authors made)

A graph of the actors' unilateral movements and improvements (Authors made)

The illustrated outcomes of individual movements and enhancements (depicted in Fig.  6 ) showcase bold lines to signify unilateral improvements and lighter lines to denote unilateral movements. The various colors correspond to distinct actions of different actors. For instance, referring to the above figure, managers can transition from state 14 to state 15 through either a unilateral move or a unilateral enhancement from state 8 to state 14. Notably, it is evident that state 20 offers no advantage when compared to the other states.

The graph of the unilateral improvements of the actors (Authors made)

Coalition Analysis

Another analysis that can be conducted based on the obtained results is coalition analysis, which seeks to ascertain whether the establishment of a coalition among actors could potentially lead to a new equilibrium state with greater priority. If such a coalition fails to produce an equilibrium state that holds higher priority for the actors involved, the existing stable equilibrium retains its status. Figure  6 depicts the graphical representation of unilateral improvements undertaken by the actors.

The results of the coalition analysis indicate the absence of a coalition between the actors in situations 14 and 20. Considering that a coalition between actors fails to yield an equilibrium state of greater priority for them, the existing stable equilibrium remains unchanged. As evident from the analysis, the number of improvement moves is fewer in situation 21 compared to the others. Therefore, it can be inferred that situation 21, aside from its stability, is also recognized as a coalition equilibrium. From this perspective, it holds a higher priority for taxi companies, albeit without a high priority for the government.

The academic literature has paid little attention to the distinguishing characteristics of established corporations and emerging competitors. This tool is invaluable for gaining a deeper understanding of the implementation of tactics in diverse contexts. This approach facilitates a comprehensive analysis of strategic decisions, offering a novel perspective compared to traditional methodologies. The approach I utilize integrates multiple disciplines to provide a comprehensive perspective on strategy. Through this integration, it unveils crucial insights that transcend particular theoretical frameworks.

Fresh arrivals often offer innovative solutions and novel concepts, attracting customers in search of state-of-the-art products. Mature organizations are frequently compelled to innovate or enhance their value propositions due to the disruptive impact of these innovations, leading to heightened competition and a disruption of the status quo. Increased market fragmentation is a common outcome when new competitors enter the market. If consumers begin to prefer the offerings of new competitors, established enterprises may experience a decrease in both market share and profitability. Established organizations often employ diverse strategies to mitigate the risks presented by new market participants. Potential strategies could involve capitalizing on economies of scale, enhancing product attributes, optimizing customer loyalty initiatives, and implementing price adjustments. Additionally, certain corporations may endeavor to erect barriers to entry by employing legal tactics, safeguarding their intellectual property, or forging strategic alliances. According to the report, established businesses should consider seeking avenues for collaboration with recent entrants, rather than solely focusing on defensive measures. Generally, the introduction of new competitors is advantageous for consumers, as it can lead to joint ventures, acquisitions, or partnerships. Typically, competition results in improved pricing, services, and products. The readiness of customers to embrace new rivals demonstrates the necessity for established enterprises to maintain flexibility and adapt to the evolving demands of their clientele. As consumers actively search for optimal value and innovation, established enterprises prioritize the preservation of their market standing. With the rise of new competitors, this rivalry has the potential to escalate into fierce competition for both market share and customer loyalty. The themes present in this work provide a nuanced outlook on the intricacies of the market and the tensions that arise between established enterprises and emerging contenders.

The GMCR + (Graph Model for Conflict Resolution) decision support model proves to be highly beneficial in examining and illustrating possible strategic scenarios and outcomes. The investigation revealed a total of twenty-one situations, out of which three equilibria and one semi-stable condition were discovered. These findings suggest that by being open to change and potential partnerships with newcomers, established businesses can attain stable and mutually advantageous results. It is advisable for established businesses to contemplate adjusting their tactics in order to leverage potential synergies and counter new rivals. This could encompass examining joint ventures, allocating resources towards innovation, and adopting more versatile company models. Furthermore, mature organizations should engage in active interaction with new competitors rather than merely reacting to market fluctuations. This could involve joint development of innovative products and technology, making financial investments in other companies, or forging strategic alliances. It is imperative for well-established businesses to prioritize understanding and fulfilling shifting customer demands. To ensure continued relevance and competitiveness, they should strive to better align their offerings with consumer preferences. Applying theme analysis in this context is new. The integration of theme analysis in GMCR + is particularly creative, as it enables the quantitative examination of qualitative understanding, identifying stable equilibria and semi-stable states among plausible possibilities.

The report thoroughly analyzes 21 scenarios and their consequences, covering a wide range of strategic interactions and equilibria. Among these scenarios, three stable equilibria and one semi-stable state were identified. Strategic alignment and conflict resolution offer various options for established businesses to adapt to new competitors. Traditional studies on market entry barriers often focus on defensive strategies employed by established companies. In contrast, this study explores collaboration and synergies between established businesses and recent arrivals. Collaborative methods are encouraged as an alternative to defensive posturing, fostering innovation and growth. This research offers a broader perspective than traditional analyses of market entry barriers. It considers the wider effects of new competitors on market dynamics, customer preferences, and the strategic responses of established businesses. This comprehensive approach enhances the understanding of the industry. The study covers multiple aspects and includes all key industry players, providing well-rounded conclusions and suggestions.

This research delved into the analysis of the competitive behavior between mature and new companies, highlighting the pivotal role of government in legislative matters. Given the nature of the problem faced by stakeholders, game theory was employed to elucidate the issue and address the raised inquiries. Owing to the challenge of quantifying certain upcoming options and actor preferences in the real world, the graph model was utilized as a problem-solving approach. Data crucial to this endeavor was sourced from documents, articles, reports, and news agencies. By employing thematic analysis on actors' upcoming options, feasible situations, and relative preferences, the results of the games were analyzed through the use of GMCR + software.

Results stemming from the analysis of stability for feasible states among actors, grounded in Nash, GMR, SMR, SEQ, and SIM logic calculations, reveal that out of 21 feasible states, 3 equilibrium states (14, 20, 21) and one semi-stable state (19) exist among the different states of the actors. The semi-stable state 19 only exists based on GMR and SEQ logics. Situations 14, 20, and 21 exhibit stability across all logics. In these situations, no actor can improve their position through unilateral actions given fixed strategies by other players (Nash equilibrium). The actors do not gain from any individual behavior (SEQ equilibrium). Actors won't be placed in worse conditions by competitors if they decide to change their situation (GMR equilibrium). Additionally, none of the actors are confined by competitors' strategies (SIM equilibrium). Furthermore, foreseeable behaviors of the actors against competitors are stable (SEQ & SIM balance), which remain stable over the long term (SMR balance).

In all four equilibrium scenarios, taxi drivers show no resistance to the current situation and exhibit a preference for collaboration with newcomers and startups involved in car requests, cargo transportation, parcel delivery, and student services. Meanwhile, the government amends public transportation development laws but refrains from interfering in determining route fares for newcomers and taxi companies. Situation 21, apart from being stable, is recognized as a coalition equilibrium, thereby affording a higher priority to traditional taxi companies over internet-based ones.

Based on the findings derived from the stability analysis of actors' possible situations using Nash, GMR, SMR, SEQ, and SIM logic calculations, taxi drivers are recommended to adopt a cooperative stance with newcomers within the framework of traffic and air pollution plans. Collaborating with other startups for car requests, cargo transportation, parcel delivery, and student services, in exchange for commissions, is also advised. Additionally, matching fare rates with internet companies can help augment demand. This research aimed to conceptually elucidate the interaction between mature and newcomer companies in the intra-city transportation sector using the graph model. Future research could enhance these findings through qualitative investigations, while further development of the model in industries where mature companies face challenges can offer valuable comparative insights.

Data Availability

The data that support the findings of this study are available from the corresponding author upon request.

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Kahrizeh, A.A., Yazdi, A.K., Wanke, P. et al. Modelling the Interaction Between Incumbents and New Entrants with a Game Theory Approach: A Case Study of Public Transportation. SN COMPUT. SCI. 5 , 895 (2024). https://doi.org/10.1007/s42979-024-03264-8

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Exploring inclusion, diversity, equity, and accessibility in the built environment: a case study.

1. Introduction

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Zallio, M.; Chivǎran, C.; Clarkson, P.J. Exploring Inclusion, Diversity, Equity, and Accessibility in the Built Environment: A Case Study. Buildings 2024 , 14 , 3018. https://doi.org/10.3390/buildings14093018

Zallio M, Chivǎran C, Clarkson PJ. Exploring Inclusion, Diversity, Equity, and Accessibility in the Built Environment: A Case Study. Buildings . 2024; 14(9):3018. https://doi.org/10.3390/buildings14093018

Zallio, Matteo, Camelia Chivǎran, and P. John Clarkson. 2024. "Exploring Inclusion, Diversity, Equity, and Accessibility in the Built Environment: A Case Study" Buildings 14, no. 9: 3018. https://doi.org/10.3390/buildings14093018

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