Disadvantageous Inequality Aversion Research Articles

Equity preferences and abatement cost sharing in international environmental agreements

AbstractThis paper examines empirically the importance of equity preferences for the formation of international environmental agreements (IEA) for transboundary pollution control. Although it has been shown theoretically that the existence of equity preferences among countries considering an IEA increases the chances for formation and stability of a coalition, empirical assessments of such preferences have been limited to climate change mitigation and single‐country studies. We consider the case of marine plastic pollution, of which a large share consists of food and beverage containers, representing a transboundary pollution control problem of increasing policy concern, with properties that lead to distinct considerations for equity and the sharing of abatement costs. We employ a coordinated choice experiment in the United Kingdom and United States to assess preferences for abatement‐cost allocations in a marine plastics IEA. Pairs of cooperating countries and the relative allocation of abatement costs are varied experimentally. Results show systematic aversion to both advantageous and disadvantageous inequality with respect to abatement costs but also that the relative strength of advantageous and disadvantageous inequality aversion differs across countries. Across both countries, there is evidence that left‐leaning voters generally favor more equal international sharing of abatement costs. Differences of these results from the case of greenhouse gas emission reduction, and implications for current efforts to establish a legally binding global treaty on marine plastic pollution, are discussed.

By-state fairness in selling to the newsvendor

Previous studies assume that the decision makers under supply chain contracting built on the newsvendor problem have by-expectation fairness concerns, that is, an aversion to the inequality of expected profits. However, recent experimental data show that they are actually averse to the inequality of profits at each demand realization, which is referred to as by-state fairness concerns. This paper examines how by-state fairness concerns (only disadvantageous inequality aversion) influence the equilibrium outcomes under a selling-to-the-newsvendor model. Compared with the fairness-neutral case, while the retailer’s concern for by-expectation fairness (only disadvantageous inequality aversion) can improve supply chain performance, his strong concern for by-state fairness can worsen it. In particular, when demand variance is large, the retailer can earn less for by-state fairness concerns. Similar to by-expectation fairness, the supplier’s by-state fairness concerns can hurt both her and the retailer. The supplier’s profit decreases with demand variance, whereas the retailer’s expected profit is nonmonotone with it. When both supply chain agents care about by-state fairness, compared with the fairness-neutral case, the supplier’s profit decreases, whereas the retailer’s expected profit can either increase or decrease. The region where the retailer earns more will shrink in either the supplier’s disadvantageous inequality parameter or demand variance.

Analysis of inequality aversion in mice using stress-induced hyperthermia

Humans have a sense of fairness and consequently have an aversion to inequality condition. Recently, animal researchers have suggested that some non-human animals also exhibit an aversion to inequality. This experiment used stress-induced hyperthermia (SIH) to examine inequality aversion in mice. Aversion was analyzed using inequitable restraint stress in Experiment 1. The mice that were restrained, but had free cage mates (disadvantageous inequality) displayed SIH. In contrast, free mice that had restrained cage mates (advantageous inequality) did not show SIH. Inequitable food delivery was used to induce SIH in Experiment 2. Food deprived mice who were surrounded by cage mates who were consuming food (disadvantageous inequality) displayed SIH. The mice that received food and were surrounded by food-deprived cage mates (advantageous inequality) also showed some increase in body temperature, but the increase was not significantly higher than that in the equality condition (where all mice received food). Pre-feeding of the test mice attenuated SIH in the disadvantageous condition suggesting that satisfied mice do not display disadvantageous inequality aversion. These results showed disadvantageous inequality aversion in mice in both negative (restraint) and positive (food) situations but not advantageous inequality aversion.

Inequality signals in dorsolateral prefrontal cortex inform social preference models.

Humans typically display inequality aversion in social situations, which manifests itself as a preference for fairer distributions of resources. However, people differ in the degree to which they dislike being worse off [disadvantageous inequality (DI) aversion] or better off [advantageous inequality (AI) aversion] than others. Competing models explain such behavior by focusing on aversion to payoff differences, maximization of total payoff or reciprocity. Using functional near-infrared spectroscopy, we asked which of these theories could better explain dorsolateral prefrontal cortex (dlPFC) activity while participants accepted or punished fair vs unfair monetary transfers in an anonymous norm compliance task. We found that while all participants exhibited DI aversion, there were substantial differences in preferences for AI, which were strongly predicted by dlPFC activation. Model comparisons revealed that both punishment behavior and prefrontal activity were best explained by a model that allowed for AI seeking rather than imposing aversion. Moreover, enhancing this model by taking into account behavioral response times, as a proxy for choice difficulty, further improved model fits. Our data provide evidence that the dlPFC encodes subjective values of payoff inequality and that this representation is richer than envisaged by standard models of social preferences.

A longitudinal exploration of advantageous and disadvantageous inequality aversion in children

Unfairness in resource allocation situations can present itself in two ways, with one person receiving either less or more than another person. Research suggests that aversion to situations of disadvantageous inequality (DI), in which a child receives less than a peer, develops differently from aversion to advantageous inequality (AI), in which a child receives more than a partner. However, little is known about how AI aversion and DI aversion develop as well as how the relationship between the two may change over time. In this short-term longitudinal study, two forms of AI and DI (in which equality was either costly or not costly) were examined. Using a forced choice resource allocation task, children’s decision making was compared across three time points: 4.5, 5.0, and 5.5years of age. In both AI and DI situations, costly and no-cost trials were correlated at each time point, establishing construct validity within trial types. A positive relationship (indicating a preference for fairness) was observed between AI and DI at Time 1, whereas no relationships were observed later in development. Finally, correlations across all time points were observed in AI trials and grew stronger with age, whereas only one relationship was observed (between Time 1 and Time 2) in DI trials. Taken together, these results suggest that decision making in situations of AI and DI develops differently and that the relationship between them changes with age. Importantly, this research suggests that motivations for fairness and equality differ depending on context, and an undifferentiated aversion to inequality is not primarily guiding decision making throughout childhood.

Exploring the Motivations for Punishment: Framing and Country-Level Effects.

Identifying the motives underpinning punishment is crucial for understanding its evolved function. In principle, punishment of distributional inequality could be motivated by the desire to reciprocate losses ('revenge') or by the desire to reduce payoff asymmetries between the punisher and the target ('inequality aversion'). By separating these two possible motivations, recent work suggests that punishment is more likely to be motivated by disadvantageous inequality aversion than by a desire for revenge. Nevertheless, these findings have not consistently replicated across different studies. Here, we suggest that considering country of origin—previously overlooked as a possible source of variation in responses—is important for understanding when and why individuals punish one another. We conducted a two-player stealing game with punishment, using data from 2,400 subjects recruited from the USA and India. US-based subjects punished in response to losses and disadvantageous inequality, but seldom invested in antisocial punishment (defined here as punishment of non-stealing partners). India-based subjects, on the other hand, punished at higher levels than US-based subjects and, so long as they did not experience disadvantageous inequality, punished stealing and non-stealing partners indiscriminately. Nevertheless, as in the USA, when stealing resulted in disadvantageous inequality, India-based subjects punished stealing partners more than non-stealing partners. These results are consistent with the hypothesis that variation in punitive behavior varies across societies, and support the idea that punishment might sometimes function to improve relative status, rather than to enforce cooperation.

Medial frontal negativity reflects advantageous inequality aversion of proposers in the ultimatum game: An ERP study

Inequality aversion is a typical form of fairness preferences, which can explain the behaviors in many social exchange situations such as the ultimatum game (UG). There are two kinds of inequality aversion—disadvantageous inequality aversion of responders and advantageous inequality aversion of proposers in the ultimatum game. Although neuroscience research has reported neural correlates of disadvantageous inequality aversion, there are still debates about advantageous inequality aversion of proposers. In this paper, we developed a variant of ultimatum game in which participants played the UG as proposers. On each trial, first, the offer was randomly presented, then, participants as proposers decided whether to choose this offer; next, responders decided whether to accept or not. Offers that responders got 1–20% of the pie are defined as advantageous unfair offers of proposers, whereas offers that responders got 31–50% are defined as fair offers. Event-related brain potentials recorded from the participants showed that more negative-going medial frontal negativity (MFN) was elicited by advantageous unfair offers compared to fair offers in the early time window (250–350ms), which suggested that proposers were averse to advantageous inequality.

Stated and revealed inequality aversion in three subject pools.

This paper reports data from three subject pools (n=717 subjects) using techniques based on those of Loewenstein, et al. (1989) and Blanco, et al. (2011) to obtain parameters, respectively, of stated and revealed inequality aversion. We provide a replication opportunity for those papers, with two innovations: (i) a design which allows stated and revealed preferences to be compared at the individual level; (ii) assessment of robustness of findings across subjects from a UK university, a Turkish university and Amazon Mechanical Turk. Our findings on stated aversion to inequality are qualitatively similar to those of Loewenstein, et al. in each of our subject pools, whereas there are notable differences between some of our findings on revealed preference and those of Blanco, et al. We find that revealed advantageous inequality aversion is often stronger than revealed dis-advantageous inequality aversion. In most subject pools, we find some (weak) correlation between corresponding parameters of stated and revealed inequality aversion.

Stated and Revealed Inequality Aversion in Three Subject Pools

This paper reports data from three subject pools (n=717 subjects) using techniques based on those of Loewenstein, et al. (1989) and Blanco, et al. (2011) to obtain parameters, respectively, of stated and revealed inequality aversion. We provide a replication opportunity for those papers, with two innovations: (i) a design which allows stated and revealed preferences to be compared at the individual level; (ii) assessment of robustness of findings across subjects from a UK university, a Turkish university and Amazon Mechanical Turk. Our findings on stated aversion to inequality are qualitatively similar to those of Loewenstein, et al. in each of our subject pools, whereas there are notable differences between some of our findings on revealed preference and those of Blanco, et al. We find that revealed advantageous inequality aversion is often stronger than revealed dis-advantageous inequality aversion. In most subject pools, we find some (weak) correlation between corresponding parameters of stated and revealed inequality aversion.

Exploring disadvantageous inequality aversion in children: how cost and discrepancy influence decision-making.

This research examined disadvantageous inequality aversion in 4- and 6-year-old children. Using the resource allocation paradigm, we explored how inequality aversion was influenced by whether a cost was associated with the equitable choice. We also investigated whether preferences for equality differed depending on whether the inequitable choice presented a small or large discrepancy between the payoff of the participant and their partner. The results demonstrated that cost plays a large role in decision-making, as children preferred equality more when there was no cost associated with it compared to when there was a cost. Interestingly, the effect of cost also affected discrepancy, with children more likely to choose equality when the discrepancy was large as opposed to small, in cost trials but not in no cost trials. Finally, the effect of discrepancy also interacted with age, with older children being more sensitive to the discrepancy between themselves and their partner. Together, these results suggest that children’s behavior is not indiscriminately guided by a generalized aversion to inequality or established fairness norms. Alternate motives for inequality aversion are discussed.

Estimating a Parsimonious Model of Inequality Aversion in Stackelberg Duopoly Experiments*

In the Stackelberg duopoly experiments in Huck et al. (2001), nearly half of the followers’ behaviours are inconsistent with conventional prediction. We use a test in which the conventional self-interested model is nested as a special case of an inequality aversion model. Maximum likelihood methods applied to the Huck et al. (2001) data set reject the self-interested model. We find that almost 40% of the players have disadvantageous inequality aversion that is statistically different from zero and economically significant, but advantageous inequality aversion is relatively unimportant. These estimates provide support for a more parsimonious model with no advantageous inequality aversion.

Beyond Egocentric Judgments of Fairness: Advantageous, Disadvantageous, and Third-Party Inequality Aversion

Recent models of economic fairness assume that at least some people are motivated to reduce economic differences between themselves and other individuals. In addition to this motive, this paper investigates whether people care also about differences between third parties. An experiment is conducted where individuals make tradeoffs between (i) own payoff and differences in payoffs versus two other subjects, and (ii) own payoff and differences in payoffs between these two subjects. The results indicate that both these types of inequalities have an adverse impact on participants' choices, suggesting that a concern for fairness extends beyond egocentric comparisons of economic distributions.