Risk versus social preferences under the veil of ignorance

Abstract

This paper reports experimental evidence from Dictator Game experiments in which subjects choose repeatedly one out of four options involving a pair of monetary prizes, one for them, one for another anonymously matched participant. In some sessions, there is no uncertainty about the player position (i.e., the identity of the best paid agent, constant across all options); in other sessions subjects choose “under the veil of ignorance”, not knowing in advance to which player position they will be eventually assigned, but only that either possibility is equally likely. Finally, we also collect evidence from additional sessions in which the same options correspond to binary lotteries, in which subjects may win the high or the low prize with equal probability, but their decisions do not affect other participants. We frame subjects’ decisions within the realm of a simple mean-variance utility maximization problem, in which the parameter associated to the variance is interpreted, depending on the treatment, as a measure of pure risk aversion, pure inequality aversion, or some combination of the two. Our estimates suggest that we can simply rely on risk aversion to explain subjects’ behavior under the veil of ignorance.