Inequality aversion and the house money effect
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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.
KeywordsIndividual preferences Inequality aversion Experimental economics Prisoner’s dilemma House money
JEL ClassificationC91 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.
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