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Inequity aversion
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Inequity aversion (IA) is the preference for fairness and resistance to inequitable outcomes. The social sciences that study inequity aversion sociology, economics, psychology, and anthropology.
esearch on humans mostly occurs in the discipline of economics though it is also studied in sociology.
Research on IA began in 1978 when studies suggested that humans are sensitive to inequities in favor of as well as those against them, and that some people attempt overcompensation when they feel 'guilty' or unhappy to have received an undeserved reward.
A more recent definition of IA (resistance to inequitable outcomes) was developed in 1999 by Fehr and Schmidt.
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Encyclopedia
Inequity aversion (IA) is the preference for fairness and resistance to inequitable outcomes. The social sciences that study inequity aversion sociology, economics, psychology, and anthropology.
Human studies
IA research on humans mostly occurs in the discipline of economics though it is also studied in sociology.
Research on IA began in 1978 when studies suggested that humans are sensitive to inequities in favor of as well as those against them, and that some people attempt overcompensation when they feel 'guilty' or unhappy to have received an undeserved reward.
A more recent definition of IA (resistance to inequitable outcomes) was developed in 1999 by Fehr and Schmidt. They postulated that people make decisions so as to minimize inequity in outcomes. Specifically, consider a setting with individuals who receive pecuniary outcomes . Then the utility to person j would be given by
,
where parametrizes the distaste for disadvantageous inequality in the first nonstandard term, and parametrizes the distaste for advantageous inequality in the final term.
Punishing unjust success and game theory
Fehr and Schmidt showed that disadvantageous IA manifests itself in humans as the "willingness to sacrifice potential gain to block another individual from receiving a superior reward". They argue that this, apparently self-destructive, response is essential in creating an environment in which bilateral bargaining can thrive. Without IA's rejection of injustice, stable co-operation would be harder to maintain (for instance, there would be more opportunities for successful free riders).
James H. Fowler and his colleagues also argue that inequity aversion is essential for cooperation in multilateral settings. In particular, they show that subjects in random income games (closely related to public goods games) are willing to spend their own money to reduce the income of wealthier group members and increase the income of poorer group members even when there is no cooperation at stake.
Thus, individuals who free ride on the contributions of fellow group members are likely to be punished because they earn more, creating a decentralized incentive for the maintenance of cooperation.
Experimental economics
Inequity aversion is broadly consistent with observations of behavior in three standard economics experiments:
- Dictator game - The subject chooses how a reward should be split between himself and another subject. If the dictator acted self-interestedly, the split would consist of 0 for the partner and the full amount for the dictator. While the most common choice is indeed to keep everything, many dictators choose to give, with the second most common choice being the 50-50 split.
- Ultimatum game - The dictator game is played, but the recipient is allowed to veto the entire deal, so that both subjects receive nothing. The partner typically vetos the deal when low offers are made (similarly to the behavior of brown capuchins). People consistently prefer getting nothing to receiving a small share of the pie. Rejecting the offer is in effect paying to punish the dictator (called the proposer).
- Trust game - The same result as found in the dictator game shows up when the dictator's initial endowment is provided by his partner, even though this requires the first player to trust that something will be returned (reciprocity). This experiment often yields a 50:50 split of the endowment, and has been used as evidence of the inequity aversion model.
Other research in experimental economics addresses risk aversion in decision making and the comparison of inequality measures to subjective judgments on perceived inequalities.
Studies of companies
Surveys of employee opinion within firms have shown modern labour economists that IA is very important to them. Employees compare not only relative salaries, but also relative performance against that of co-workers. Where these comparisons lead to guilt or envy, Inequity Aversion may lower employee morale. According to Bewley (1999), the main reason that managers create formal pay structures is so that the inter-employee comparison is seen to be 'fair', which they considered 'key' for morale and job performance.
It is natural to think of IA leading to greater 'solidarity' within the labour pool, to the benefit of the average employee. However, a 2002 paper by Pedro Rey Biel shows that this assumption can be subverted, and that an employer can use Inequity Aversion to get higher performance for less pay than would be possible otherwise (). In Biel's model this is done by moving away from formal pay structures and using off-equilibrium bonus payments as incentives for extra performance. He shows that the optimal contract for IA employees is less generous at the optimal production level than contracts for 'standard agents' (who don't have inequity aversion) in an otherwise identical two-employee model.
Criticisms of Inequity Aversion
In 2005 Avner Shaked distributed a "pamphlet" entitled "The Rhetoric of Inequity Aversion" that attacked the IA papers of Fehr & Schmidt.
An alternative to the concept of a general inequity aversion is the assumption, that the degree and the structure of inequality could lead either to acceptance or to aversion of inequality.
Non-human studies
An experiment on capuchin monkeys showed that the subjects would prefer receiving nothing to receiving a reward awarded inequitably in favor of a second monkey, and appeared to target their anger at the researchers responsible for the inequitable distribution of food. Anthropologists suggest that this research indicates a biological and evolutionary sense of social "fair play" in primates, though others believe that this is learned behaviour. Aside from humans and brown capuchins, there is evidence for inequity aversion in chimpanzees. Animal cognition studies in other biological orders have not found similar importance on relative 'equity' and 'justice' as opposed to absolute utility.
Fehr & Schmidt's IA model may partially explain the widespread opposition to economic inequality in democracies, although a distinction should be drawn between IA's "guilt" and egalitarianism's "compassion", which does not necessarily imply injustice.
Inequity aversion should not be confused with the arguments against the consequences of inequality. For example, the pro-publicly-funded health care slogan "Hospitals for the poor become poor hospitals" directly objects to a predicted decline in medical care, not the health-care apartheid that is supposed to cause it. The argument that average medical outcomes improve with reduction in healthcare inequality (at the same total spending) is separate from the case for public healthcare on the grounds of inequity aversion.
See also
External links
- for kids, from the BBC.
- (National Geographic News, September 172003).
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- - Raúl López Pérez defines the Fehr and Schmidt IA model mathematically as well as proposing a different formulational of 'emotional' deviations from rationality.
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