Preferences for fairness over losses

Abstract

Economic decision making often involves determining how to share losses, or liabilities. While preferences for fairness over positive outcomes, i.e., gains, have been extensively studied, preferences for fairness over negative outcomes, i.e., losses, are largely unknown. Preferences for fairness over losses may differ from those over gains, given loss aversion and disutility from imposing losses on others (e.g., the do-no-harm principle). In two incentivized dictator game experiments, we examine altruism in two different frames – a loss condition and a gain condition. Study 1 shows that Dictators are more generous when splitting losses compared to gains. Study 2 shows that Dictator generosity in the loss condition substantially decreases when subjects are reminded of the payoff distribution resulting from their decisions. Our results support the idea that preferences for fairness over losses may differ from those over gains, underscoring the importance of studying preferences for fairness over losses and their determinants.