Abstract
Inequity aversion and reciprocity have been identified as two primary motives underlying human decision-making. However, because income and wealth inequalities exist to some degree in all societies, these two key motives can point to different decisions. In particular, when a beneficiary is less wealthy than the benefactor, a reciprocal action can lead to greater inequality. In this paper, we report data from a trust game variant where trustees’ responses to kind intentions generate inequality in favor of investors. In relation to a standard trust game treatment where trustees’ responses reduce inequality, the proportion of non-reciprocating decisions is twice as large when reciprocity promotes inequality. Moreover, we find that investors expect that this will be the case. Overall, we find that a majority (more than half) of trustees do not reciprocate when reciprocity increases inequality that favors investors. Our results call attention to the potential importance of inequality in principal–agent relationships and have important implications for policies aimed at promoting trust and cooperation.
Highlights
Research in economics, psychology, and sociology provides compelling evidence that people often make decisions inconsistent with monetary earnings-maximization
Given that inequality is ubiquitous in human societies in general, and that it typically exists in principal–agent relationships in particular, it is perhaps surprising that little previous research has attempted to characterize decision making when equality and reciprocity are in conflict
This paper provides direct evidence about decision making in environments where inequality aversion and reciprocity have divergent behavioral implications
Summary
Psychology, and sociology provides compelling evidence that people often make decisions inconsistent with monetary earnings-maximization. From this observation has emerged a substantial empirical and theoretical literature seeking to improve our understanding of human decision making. This literature points to inequity aversion and reciprocity as important motives underlying human decisions (see, Fehr & Gächter, 2000). The investor first decides how much of her endowment to transfer to the trustee, who receives the tripled transfer amount. The trustee decides how much of the tripled transfer amount to send back to the investor. It has been found that investors typically transfer a positive amount and that trustees typically return at least the amount transferred (Camerer, 2003)
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