Inequality Aversion Model Research Articles

Impact of organizational structure and in-organization resource allocation on trust and trustworthiness

We experimentally investigated how different organizational structures (horizontal, vertical) and in-organization resource allocation methods (equal, unequal) impact individuals’ trust-related behavior using a two-stage, three-player trust game. As factors influencing trust or trustworthiness, we focused on influential and resource-based power shaped by organizational structures and resource allocation methods, respectively. We expanded the inequity aversion model with power inequities and demonstrated that power inequities can impact individuals’ inequity aversion and therefore their trust-related behavior. In the equal resource allocation treatment, the trustees exhibited a greater probability of being trustworthy, and the trustors were more trusting in the horizontal structure treatment. Those trustees holding both power types significantly encouraged trust and trustworthiness, while influential power was more effective in increasing trustworthiness. This study makes a novel theoretical contribution by exploring the motivation factors of power inequity aversion and explaining how organizational structures and resource allocation methods impact individuals’ trust-related behavior via inequity aversion.

Environmental-Impact-Based Multi-Agent Reinforcement Learning

To promote cooperation and strengthen the individual impact on the collective outcome in social dilemmas, we propose the Environmental-impact Multi-Agent Reinforcement Learning (EMuReL) method where each agent estimates the “environmental impact” of every other agent, that is, the difference in the current environment state compared to the hypothetical environment in the absence of that other agent. Inspired by the inequity aversion model, the agent then compares its own reward with that of its fellows multiplied by their environmental impacts. If its reward exceeds the scaled reward of one of its fellows, the agent takes “social responsibility” toward that fellow by reducing its own reward. Therefore, the less influential an agent is in reaching the current state, the more social responsibility is taken by other agents. Experiments in the Cleanup (resp. Harvest) test environment demonstrated that agents trained based on EMuReL learned to cooperate more effectively and obtained 54% (39%) and 20% (44%) more total rewards while preserving the same cooperation levels compared to when they were trained based on the two state-of-the-art reward reshaping methods: inequity aversion and social influence.

Do People Care about Others’ Benefits from Public Goods? An Investigation Based on Inequity Aversion Model

Do People Care about Others’ Benefits from Public Goods? An Investigation Based on Inequity Aversion Model

Preferences over taxation of high-income individuals: Evidence from a survey experiment

The mobility of high-income individuals across borders puts pressure on governments to lower taxes. A central tenet of the corresponding textbook argument is that mobile individuals react to tax differentials through migration and immobile individuals vote for lower taxes. We investigate to which extent this argument is complete. In particular, political ideology may influence voting on taxes. We vary mobility and foreign taxes in a survey experiment within the German Internet Panel (GIP), with more than 3000 individuals participating. We find that while the treatment effects qualitatively confirm model predictions of how voters take the mobility of high-income earners into account when choosing domestic taxes, ideology matters: left-leaning high-income individuals choose higher taxes and emigrate less frequently than right-leaning ones. These findings are in line with the comparative-static predictions of a simple model of inequality aversion when the aversion parameters vary with ideology.

Choquet operators and belief functions

This paper investigates characterizations of a class of belief functions. Our main contributions are threefold. First, using the notion of invariant weights, we characterize the Choquet operator with respect to belief functions along the lines of Schmeidler [26]. Second, we directly derive a class of belief functions on a state space and a collection of events that determines whether the Möbius inversion is strictly positive or zero. Third, we show that the derived collection is simple-complete. Our characterization results yield a wide variety of applications to economics, a multiperiod decision model, an inequality aversion model, and Leontief preferences.

Estimating social preferences using stated satisfaction: Novel support for inequity aversion

Experimental identification of social preferences often uses a revealed-preference approach, whereby participants make choices over payment distributions for themselves and others. We introduce an alternative “stated satisfaction” approach: participants directly report their satisfaction with various payment-profiles that hold their own payment constant while varying another participant's payment. We then use our data to estimate the unrestricted parameters of the Fehr and Schmidt (1999) model to determine participants’ social preferences. While the Fehr and Schmidt parameter-assumptions make it a model of inequity aversion, alternate parameter-assumptions can reflect different social preferences. Our methodology yields support for the Fehr and Schmidt assumptions (i.e., that both disadvantageous and advantageous inequity are utility-diminishing, the former more so than the latter) at both the aggregate and individual levels. Methodologically, eliciting satisfaction can be an easy-to-implement complement to choice-based preference-measures in contexts other than social preferences that are of interest to economists.

A controversy about modeling practices: the case of inequity aversion

ABSTRACT This paper studies the controversy on Fehr and Schmidt's model of inequity aversion. It borrows insights from disciplines such as philosophy and the sociology of science that have specialized in studying scientific controversies. Our goal is to contribute to the historical and methodological literature on behavioral economics, which happens to have neglected behavioral economists' research on social preferences. Our analysis of the controversy reveals some new insights about the relation of behavioral economics with other sub-fields in economics, as well as with other disciplines.

Understanding guilt-related interpersonal dysfunction in obsessive-compulsive personality disorder through computational modeling of two social interaction tasks.

Obsessive-compulsive personality disorder (OCPD) is a high-prevalence personality disorder characterized by subtle but stable interpersonal dysfunction. There have been only limited studies addressing the behavioral patterns and cognitive features of OCPD in interpersonal contexts. The purpose of this study was to investigate how behaviors differ between OCPD individuals and healthy controls (HCs) in the context of guilt-related interpersonal responses. A total of 113 participants were recruited, including 46 who were identified as having OCPD and 67 HCs. Guilt-related interpersonal responses were manipulated and measured with two social interactive tasks: the Guilt Aversion Task, to assess how anticipatory guilt motivates cooperation; and the Guilt Compensation Task, to assess how experienced guilt induces compensation behaviors. The guilt aversion model and Fehr-Schmidt inequity aversion model were adopted to analyze decision-making in the Guilt Aversion Task and the Guilt Compensation Task, respectively. Computational model-based results demonstrated that, compared with HCs, the OCPD group exhibited less guilt aversion when making cooperative decisions as well as less guilt-induced compensation after harming others. Our findings indicate that individuals with OCPD tend to be less affected by guilt than HCs. These impairments in guilt-related responses may prevent adjustments in behaviors toward compliance with social norms and thus result in interpersonal dysfunctions.

A Computational Model of Non-optimal Suspiciousness in the Minnesota Trust Game.

This study modelled spite sensitivity, the worry that others are willing to incur a loss to hurt you, which is thought to undergird suspiciousness and persecutory ideation. Two samples performed a parametric, non-iterative trust game known as the Minnesota Trust Game (MTG). The MTG distinguishes suspicious decision-making from otherwise rational mistrust by incentivizing the player to trust in certain situations but not others. In Sample 1, 243 undergraduates who completed the MTG showed less trust as the amount of money they could lose increased. However, only for choices where partners had a financial disincentive to betray the player was variation in the willingness to trust associated with suspicious beliefs. We modified the Fehr-Schmidt (1999) inequity aversion model, which compares unequal outcomes in social decision-making tasks, to include the possibility for spite sensitivity. An anticipated partner's dislike of advantageous inequity (i.e., guilt) parameter included negative values, with negative guilt indicating spite. We hypothesized that the anticipated guilt parameter would be strongly related to suspicious beliefs. Our modification of the Fehr-Schmidt model improved estimation of MTG behavior. Furthermore, the estimation of partner's spite-guilt was highly correlated with choices associated with beliefs in persecution. We replicated our findings in a second sample. This parameter was weakly correlated with a self-reported measure of persecutory ideation in Sample 2. The "Suspiciousness" condition, unique to the MTG, can be modeled to isolate spite sensitivity, suggesting differentiation from inequity aversion or risk aversion. The MTG offers promise for future studies to quantify persecutory beliefs in clinical populations.

Estimating Social Preferences Using Stated Satisfaction: Novel Support for Inequity Aversion

In this paper, we use stated satisfaction to estimate social preferences: subjects report their satisfaction with payment-profiles that hold their own payment constant while varying another subject's payment. This approach yields significant support for the inequity aversion model of Fehr and Schmidt (1999). This model is among the most renowned in behavioral economics, positing a generalized aversion to inequality that is stronger when one's own payoff is lower–rather than higher–than others'; i.e., is stronger than guilt. While aggregate-level estimates based on revealed preferences in laboratory games have supported the model, the assumption that guilt is stronger than envy is often violated at the individual level. This paradox may be due to limitations of the revealed-preference approach. An advantage of avoiding games is that eliciting stated satisfaction is relatively easy to implement and is less prone to being confounded with motives like reciprocity; also the absence of tradeoffs between own and others' payoffs is cognitively less demanding for subjects. Our unstructured approach does not limit the expression of social preferences to inequity aversion, yet our methodology yields significant support for it. At the individual level, 86% of subjects exhibit at least as strong envy as guilt, and 76% (65%) of subjects weakly (strongly) adhere to the model. Our individual-level estimates are robust to changing the value of one's own constant payment and to changing the range of the other subject's payments. Methodologically, eliciting satisfaction can be an easy-to-implement complement to choice-based preference-measures in contexts other than social preferences that are of interest to economists.

Inequity aversion in dynamically complex supply chains

Inequity aversion models developed by Fehr and Schmidt (1999) and Bolton and Ockenfels (2000) assume that, in addition to purely selfish subjects, there are subjects who dislike inequitable outcomes. Within the supply chain management literature, these models were used to study fairness concerns. A common limitation in this research area has been the use of rather simple settings, mainly dyadic channels with a single supplier and retailer. Thus, researching social preferences in different channel structures and the idea of multiple-player groups have been suggested as interesting future research areas. In this paper, we present dynamic analyses of the two inequity aversion models and their application in the Beer Distribution Game setting. Our simulation results challenge currently held assumptions about fairness perceptions among supply chain members. We provide some structural explanations for this and suggests future research areas.

Rawlsian fairness in push and pull supply chains

We study a dyadic supply chain with firms following the Rawlsian principle of fairness and examine its impact on chain performance and firms’ profits. Different from the inequality-aversion model in the distributional fairness literature, the participants with the Rawlsian fairness concern maximize the profit of the disadvantageous party according to their own fairness criteria. Our results show that the Rawlsian principle adopted by individual firms can achieve not only fairness but also Pareto efficiency. By studying both push and pull supply chains, we find that what matters is the decision sequence between the manufacturer and the retailer. The fair-minded Stackelberg follower can induce the Stackelberg leader, no matter fair-minded or not, to offer a coordinating wholesale price. The chain coordination can be achieved only if the follower is not too demanding (i.e., it does not demand an excessively high portion of chain profit according to its fairness criterion). Additionally, a win-win outcome can be achieved, provided the follower is not too humble. All else being equal, the win-win region is larger with a higher demand uncertainty. Last but not least, we compare our results with those under the inequality-averse fairness model on a push supply chain and find that the parameter ranges of coordination and win-win are wider when the participants follow the Rawlsian principle of fairness.

A Model of Inequality Aversion and Private Provision of Public Goods

AbstractI develop a model of inequality aversion and public goods that allows the marginal rate of substitution to be variable. As a theoretical foundation, utility function of the standard public goods model is nested in the Fehr-Schmidt model. An individual’s contribution function for a public good is derived by solving the problem of kinky preference and examining both interior and corner solutions. Results show that the derived contribution function is not monotonic with respect to the other individual’s provision. Thus, the model can be used to explain empirical evidence for the effect of social comparison on public-good provision.

Preferences Over Taxation of High-Income Individuals: Evidence from a Survey Experiment

Mobility of high-income individuals across borders puts pressure on governments to lower taxes. A central tenet of the corresponding textbook argument is that mobile individuals react to tax differentials through migration, and in turn immobile individuals vote for lower taxes. We investigate to which extent this argument is complete. In particular, political ideology may influence voting on taxes. We vary mobility and foreign taxes in a survey experiment within the German Internet Panel (GIP), with more than 3,000 individuals participating. We find that while the treatment effects qualitatively confirm model predictions how voters take mobility of high-income earners into account when choosing domestic taxes, ideology matters: left-leaning high-income individuals choose higher taxes and emigrate less frequently than right-leaning ones. These findings are in line with the comparative-static predictions of a simple model of inequality aversion when the aversion parameters vary with ideology.

Effects of gain-loss frames on advantageous inequality aversion

This paper studies individuals’ preference for reducing advantageous inequality in the distribution of gains and losses. Combining the inequality aversion model of Fehr and Schmidt (Q J Econ 114(3):817–868, 1999) with loss aversion a la Kahneman and Tversky (Econom J Econom Soc:263–291, 1979), we predict the relative dislike for advantageous inequality is lower when outcomes are framed as losses than when outcomes are framed as gains. We test this prediction using data from two modified dictator game experiments. Consistent with the model, we find that the amount of payoff that subjects are willing to sacrifice to increase the net payoff of others and reduce advantageous inequality is smaller under a loss frame than under a gain frame. The results also show that women are more inequality averse than men in both gains and losses.

Information Asymmetry and Exposure Effects in Dictator Games

This study introduces a theoretical model of inequality aversion that can also be used in an environment with information asymmetries. The model is based on the non-paternalistic approach in which, the utility function incorporates the utility of other people as perceived by a decision maker. This can explain the different behavior of people under a very common environment with incomplete information. I extend the model by adding shame aversion as an additional driver for apparently altruistic behavior. The threat of shame is induced by different levels of exposure of either one’s own actions or identity to third-party observers. I also experimentally test predictions of the model using a simple environment of a dictator’s game. The experimental design aims to remove additional confounding behavioral effects present in the previous literature. The results suggest that even exposure to only one person, who is not affected by the agent’s decision, results in significantly higher amounts sent to recipients. The analysis also shows that agents who believe they can conceal their own actions in front of a less-informed counterpart exploit this lack of transparency for their monetary benefit.

Expectations in the Ultimatum Game: Distinct Effects of Mean and Variance of Expected Offers.

Being treated fairly by others is an important need in everyday life. Experimentally, fairness can be studied using the Ultimatum Game, where the decision to reject a low, but non-zero offer is seen as a way to punish the other player for an unacceptable offer. The canonical explanation of such behavior is inequity aversion: people prefer equal outcomes over personal gains. However, there is abundant evidence that people's decision to reject a low offer can be changed by contextual factors and their emotional state, which cannot be explained by the inequity aversion model. Here, we expand a recent alternative explanation: rejections are driven by deviations from expectations: the larger the difference between the actual offer and the expected offer, the more likely one is to reject the offer. Specifically, we provided participants with explicit information on what kind of offers to expect using histograms depicting distribution of offers given in a previous experiment by the same proposers. Crucially, we showed four different distributions, manipulating both the mean and the variance of these expected sets of offers. We found that 50% of our participants clearly and systematically changed their behavior as a function of their expectations (11% followed the standard-economic model of pure self-interest and 39% where not distinguishable from the inequity-aversion model). Using a logistic mixed-model analysis, we found that the mean and variance differently affect the decision to reject an offer. Specifically, the mean expected offer affected the threshold of what offers are acceptable, while the expected variance of offers changed how strict participants were about this threshold. Together, these results suggest that social expectations have a more complex nature as current theories propose.

Social Preferences and Social Curiosity

Over the last two decades social preferences have been implicated in a wide variety of key economic behaviors. Here we investigate connections between social preferences and the demand for information about others’ economic decisions and outcomes, which we denote “social curiosity.” Our analysis is within the context of the inequality aversion model of Fehr and Schmidt (1999). Using data from laboratory experiments with sequential public goods games, we estimate social preferences at the individual level, and then correlate social preferences with one’s willingness to pay to make visible others’ contribution decisions. Our investigation enables us to shed light on how costs to knowing others’ economic decisions and outcomes impact decisions among people with different social preferences, and in particular the extent to which such costs impact the willingness for groups to cooperate.

Social Preferences and Social Curiosity

Over the last two decades social preferences have been implicated in a wide variety of key economic behaviors. Here we investigate connections between social preferences and the demand for information about others’ economic decisions and outcomes, which we denote “social curiosity.” Our analysis is within the context of the inequality aversion model of Fehr and Schmidt (1999). Using data from laboratory experiments with sequential public goods games, we estimate social preferences at the individual level, and then correlate social preferences with one’s willingness to pay to make visible others’ contribution decisions. Our investigation enables us to shed light on how costs to knowing others’ economic decisions and outcomes impact decisions among people with different social preferences, and in particular the extent to which such costs impact the willingness for groups to cooperate.

The Effect of Shame in Dictator Games with Information Asymmetry

This study introduces a theoretical model of inequality aversion which can also be used in an environment with information asymmetries. The model is based on the non-paternalistic approach where, the own utility function incorporates the utility of other people as perceived by a decision maker. Moreover it allows extensions for other motives which may result in pro-social behavior. I extend the model by adding shame aversion as an additional driver for apparently altruistic behavior. Threat of shame is induced by different levels of exposure of either own actions or identity to the third party observers. I also experimentally test predictions of the model using a very simple environment of a dictator’s game. The experimental design aims to remove additional confounding behavioral effects present in the previous literature. The results suggest that even a very small exposure results in significantly higher amounts sent to recipients. The analysis also shows that the agents, who believe that they can conceal their own actions in front of the less informed counterpart, exploit this information asymmetry for their monetary benefit.