Experimental Economics

, Volume 15, Issue 3, pp 460–484 | Cite as

Inequality aversion and the house money effect

  • Astrid Dannenberg
  • Thomas Riechmann
  • Bodo Sturm
  • Carsten Vogt


In this paper, we analyse if individual inequality aversion measured with simple experimental games depends on whether the monetary endowment in these games is either a windfall gain (“house money”) or a reward for a certain effort-related performance. We then examine whether the way of preference elicitation affects the explanatory power of inequality aversion in social dilemma situations. Our results indicate that individual inequality aversion measured by the model of Fehr and Schmidt (Quarterly Journal of Economics 114(3):817–868, 1999) is not generally robust to the way endowments emerge. The inequality aversion model has only low predictive power for individual behaviour. It performs best when the endowment is house money and relatively small.


Individual preferences Inequality aversion Experimental economics Prisoner’s dilemma House money 

JEL Classification

C91 C92 H41 



The authors would like to thank two anonymous referees and the editor for very useful comments and suggestions. Financial support from the German Science Foundation is gratefully acknowledged.


  1. Ackert, L. F., Charupat, N., Church, B. K., & Deaves, R. (2006). An experimental examination of the house money effect in a multi-period setting. Experimental Economics, 9(1), 5–16. CrossRefGoogle Scholar
  2. Arkes, H. R., Joyner, C. A., Pezzo, M. V., Gradwohl Nash, J., Siegel-Jacoby, K., & Stone, E. (1994). The psychology of windfall gains. Organizational Behavior and Human Decision Processes, 59(3), 331–347. CrossRefGoogle Scholar
  3. Babcock, L., & Loewenstein, G. (1997). Explaining bargaining impasse: the role of self-serving biases. Journal of Economic Perspectives, 11(1), 109–126. CrossRefGoogle Scholar
  4. Ben-Ner, A., Putterman, L., Kong, F., & Magan, D. (2004). Reciprocity in a two-part dictator game. Journal of Economic Behavior & Organization, 53(3), 333–352. CrossRefGoogle Scholar
  5. Blanco, M., Engelmann, D., & Normann, H.-T. (2011). A within-subject analysis of other-regarding preferences. Games and Economic Behavior, 72(2), 321–338. CrossRefGoogle Scholar
  6. Brandts, J., & Charness, G. (2011). The strategy versus the direct-response method: a first survey of experimental comparisons. Experimental Economics, 14(3), 375–398. CrossRefGoogle Scholar
  7. Bolton, G. E., & Ockenfels, A. (2000). ERC. A theory of equity, reciprocity and competition. American Economic Review, 90(1), 166–193. CrossRefGoogle Scholar
  8. Brosig, J., Riechmann, T., & Weimann, J. (2007). Selfish in the end? An investigation of consistency and stability of individual behaviour. FEMM Working Paper No. 07005, University of Magdeburg. Google Scholar
  9. Charness, G., & Grosskopf, B. (2001). Relative payoffs and happiness: an experimental study. Journal of Economic Behavior & Organization, 45, 301–328. CrossRefGoogle Scholar
  10. Charness, G., & Rabin, M. (2002). Understanding social preferences with simple tests. The Quarterly Journal of Economics, 117, 817–868. CrossRefGoogle Scholar
  11. Cherry, T. L. (2001). Mental accounting and other-regarding behaviour: evidence from the lab. Journal of Economic Psychology, 22(5), 605–615. CrossRefGoogle Scholar
  12. Cherry, T. L., Frykblom, P., & Shogren, J. F. (2002). Hardnose the dictator. American Economic Review, 92(4), 1218–1221. CrossRefGoogle Scholar
  13. Cherry, T. L., Kroll, S., & Shogren, J. F. (2005). The impact of endowment heterogeneity and origin on public good contributions: evidence from the lab. Journal of Economic Behavior & Organization, 57(3), 357–365. CrossRefGoogle Scholar
  14. Clark, J. (2002). House money effects in public good experiments. Experimental Economics, 5, 223–231. CrossRefGoogle Scholar
  15. Dannenberg, A., Riechmann, T., Sturm, B., & Vogt, C. (2010), Stability and explanatory power of inequality aversion—an investigation of the house money effect. ZEW Discussion Paper No. 10-006, Mannheim. Google Scholar
  16. Dufwenberg, M., & Kirchsteiger, G. (2004). A theory of sequential reciprocity. Games and Economic Behavior, 47, 268–298. CrossRefGoogle Scholar
  17. Eckel, C. C., & Grossman, P. J. (1996). Altruism in anonymous dictator games. Games and Economic Behavior, 16, 181–191. CrossRefGoogle Scholar
  18. Engelmann, D., & Strobel, M. (2004). Inequality aversion, efficiency, and maximin preferences in simple distribution experiments. American Economic Review, 94(4), 857–869. CrossRefGoogle Scholar
  19. Falk, A., & Fischbacher, U. (2006). A theory of reciprocity. Games and Economic Behavior, 54(2), 293–315. CrossRefGoogle Scholar
  20. Falk, A., Fehr, E., & Fischbacher, U. (2008). Testing theories of fairness—intentions matter. Games and Economic Behavior, 62, 287–303. CrossRefGoogle Scholar
  21. Fehr, E., & Gächter, S. (2000). Cooperation and punishment in public goods experiments. American Economic Review, 90(4), 980–994. CrossRefGoogle Scholar
  22. Fehr, E., & Schmidt, K. M. (1999). A theory of fairness, competition, and cooperation. The Quarterly Journal of Economics, 114(3), 817–868. CrossRefGoogle Scholar
  23. Fehr, E., & Schmidt, K. M. (2006). The economics of fairness, reciprocity and altruism—experimental evidence and new theories. In S.-C. Kolm & J. M. Ythier (Eds.), Handbook on the economics of giving, reciprocity and altruism (Vol. 1, pp. 615–691). Amsterdam: Elsevier. Google Scholar
  24. Fischbacher, U. (2007). z-Tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10(2), 171–178. CrossRefGoogle Scholar
  25. Fischbacher, U., & Gächter, S. (2010). Social preferences, beliefs, and the dynamics of free riding in public goods experiments. The American Economic Review, American Economic Association, 100(1), 541–556. Google Scholar
  26. Goeree, J. K., & Holt, C. A. (2000). Asymmetric inequality aversion and noisy behavior in alternating-offer bargaining games. European Economic Review, 44(4–6), 1079–1089. CrossRefGoogle Scholar
  27. Greiner, B. (2003). An online recruitment system for economic experiments. In K. Kremer & V. Macho (Eds.), Forschung und wissenschaftliches Rechnen 2003. GWDG Bericht 63 (pp. 79–93). Göttingen: Ges. für Wiss. Datenverarbeitung, 2004. Google Scholar
  28. Harrison, G. (2007). House money effects in public good experiments: comment. Experimental Economics, 10(4), 429–437. CrossRefGoogle Scholar
  29. Hoffman, E., McCabe, K., Shachat, K., & Smith, V. (1994). Preferences, property rights and anonymity in bargaining games. Games and Economic Behavior, 7(3), 346–380. CrossRefGoogle Scholar
  30. Iriberri, N., & Rey-Biel, P. (2011). The role of role uncertainty in modified dictator games. Experimental Economics, 14(2), 160–180. CrossRefGoogle Scholar
  31. Keasey, K., & Moon, P. (1996). Gambling with the house money in capital expenditure decisions: an experimental analysis. Economics Letters, 50(1), 105–110. CrossRefGoogle Scholar
  32. Keeler, J., James, W., & Abdel-Ghany, M. (1985). The relative size of windfall income and the permanent income hypothesis. Journal of Business and Statistics, 3(3), 209–215. Google Scholar
  33. Kosfeld, M., Okada, A., & Riedl, A. (2009) Institution formation in public goods games. American Economic Review, 99(4), 1335–1355. CrossRefGoogle Scholar
  34. Kroll, S., Cherry, T. L., & Shogren, J. F. (2007). The impact of endowment heterogeneity and origin in best-shot public good games. Experimental Economics, 10(4), 411–428. CrossRefGoogle Scholar
  35. Ockenfels, A., & Weimann, J. (1999). Types and patterns: an experimental East-West-German comparison of cooperation and solidarity. Journal of Public Economics, 71(2), 275–287. CrossRefGoogle Scholar
  36. Oxoby, R. J. & Spraggon, J. (2008). Mine and yours: property rights in dictator games. Journal of Economic Behavior & Organization, 65(3–4), 703–713. CrossRefGoogle Scholar
  37. Reinstein, D., & Riener, G. (2009). House money effects on charitable giving: an experiment. Discussion paper. Google Scholar
  38. Rosenboim, M., & Shavit, T. (2011). Whose money is it anyway? Using prepaid incentives in experimental economics to create a natural environment. Experimental Economics, doi: 10.1007/s10683-011-9294-4. Google Scholar
  39. Ruffle, B. J. (1998). More is better, but fair is fair: tipping in dictator and ultimatum games. Games and Economic Behavior, 23(2), 247–265. CrossRefGoogle Scholar
  40. Teyssier, S. (2009). Inequity and risk aversion in sequential public good games. Working Paper 09-19, GATE, Écully. Google Scholar
  41. Thaler, R. H., & Johnson, E. J. (1990). Gambling with the house money and trying to break even: the effects of prior outcomes on risky choices. Management Science, 36(6), 643–660. CrossRefGoogle Scholar

Copyright information

© Economic Science Association 2011

Authors and Affiliations

  • Astrid Dannenberg
    • 1
  • Thomas Riechmann
    • 2
  • Bodo Sturm
    • 1
    • 3
  • Carsten Vogt
    • 4
  1. 1.Centre for European Economic Research (ZEW)MannheimGermany
  2. 2.Faculty of Business Studies and EconomicsUniversity of KaiserslauternKaiserslauternGermany
  3. 3.Department of Business AdministrationLeipzig University of Applied SciencesLeipzigGermany
  4. 4.Department of Business AdministrationBochum University of Applied SciencesBochumGermany

Personalised recommendations