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Choice set, relative income, and inequity aversion: An experimental investigation

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  • He, Haoran
  • Wu, Keyu

Abstract

Inequity aversion preference has been widely applied in interpretations of various economic behaviors. A rapidly growing literature has been attempting to measure the strength of inequity aversion preferences as accurately as possible. We vary two factors that might affect the accuracy of the measurement of inequity aversion preference, i.e., choice sets with different underlying inequity aversion strength ranges and with different relative income inequities while absolute income inequities remain fixed. We find that unidirectional changes in the choice sets for disadvantageous and advantageous inequity aversion preferences significantly bias the measured strength of both preferences in the same directions of the changes and that the variance in inequity aversion increases with the range of choice sets. Moreover, a decrease in relative income inequity raises the measured strength of advantageous inequity aversion but does not affect disadvantageous inequity aversion preference. Our results suggest controlling for choice sets and relative income inequity between players to improve the measurement accuracy of inequity aversion preference.

Suggested Citation

  • He, Haoran & Wu, Keyu, 2016. "Choice set, relative income, and inequity aversion: An experimental investigation," Journal of Economic Psychology, Elsevier, vol. 54(C), pages 177-193.
    • Handle: RePEc:eee:joepsy:v:54:y:2016:i:c:p:177-193
    DOI: 10.1016/j.joep.2016.04.002
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    2. Ryutaro Mori & Nobuyuki Hanaki & Tatsuya Kameda, 2024. "An outside individual option increases optimism and facilitates collaboration when groups form flexibly," Nature Communications, Nature, vol. 15(1), pages 1-13, December.
    3. Michalis Drouvelis & Nobuyuki Hanaki & Yuta Shimodaira, 2023. "Giving and Costless Retaliation in the Power-to-Take Game," CESifo Working Paper Series 10607, CESifo.
    4. Salvatore Nunnari & Massimiliano Pozzi, 2022. "Meta-Analysis of Inequality Aversion Estimates," CESifo Working Paper Series 9851, CESifo.

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    More about this item

    Keywords

    Inequity aversion; Choice set; Relative income; Experiment;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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