A Matter of Perspective: How Failure Shapes Distributive Preferences

Abstract

People vary in what they view as a fair distribution of earnings in organizations and, more generally, society. Where do these different views originate? We study the question of whether the experience of failure or success in a winner-take-most competition shapes people’s perspectives about distributive justice. In a laboratory experiment, subjects generated a high or low income either through a lottery or through a performance-based tournament. A subset of subjects could then redistribute the income of another subset of subjects. We find that the tournament losers redistribute significantly more than all of the other distributors when the inequality is generated by the tournament, whereas the lottery losers redistribute significantly more than all of the other distributors when the inequality is generated by the lottery. The effect still holds when controlling for potential self-selection into different outcomes of the tournament. We replicate the results in a second experiment and show that the underlying psychological mechanisms include an in-group bias and a self-serving bias in responsibility attribution. These findings have implications for the design of compensation schemes in organizations and for public policies in general. This paper was accepted by Yan Chen, decision analysis.