DP6853 Equity Aversion

Author(s): Chaim Fershtman , Uri Gneezy , John List

Publication Date: June 2008

Keyword(s): Equity Aversion , Social Preferences , Social Status

JEL(s): C91 , Z13

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP6853.asp.asp

Models of inequity aversion and fairness have dominated the behavioural economics landscape in the last decade. This study gathers data from 240 subjects exposed to variants of two of the major experimental games - dictator and trust - that are employed to provide important empirical content to these models. With a set of simple laboratory treatments that focus on a manipulation of an important feature of real markets, competition over resources, we show that extant behavioural models are unable to explain data drawn from realistic manipulations of either game. Our empirical results highlight that if placed in an environment wherein socially acceptable actions provide one person with a greater portion of the rents, people will put forth extra effort to secure those rents, to the detriment of the other player. In this manner, when one can earn more than the other player through actions deemed customary, people reveal a preference for equity aversion, not inequity aversion. We propose an alternative modelling approach that can explain these data as well as accommodate other major data patterns observed in the experimental literature.