Just luck: an experimental study of risk taking and fairness

Cappelen, Alexander W and Konow, James and Sorensen, Erik O and Tungodden, Bertil (2010): Just luck: an experimental study of risk taking and fairness.

Abstract

Choices involving risk significantly affect the distribution of income and wealth in society. This paper reports the results of the first experiment, to our knowledge, to study fairness views about risk-taking, specifically whether such views are based chiefly on ex ante opportunities or on ex post outcomes. We find that, even though many participants focus exclusively on ex ante opportunities, most favor some redistribution ex post. Many participants also make a distinction between ex post inequalities that reflect differences in luck and ex post inequalities that reflect differences in choices. These findings apply to both stakeholders and impartial spectators.

• Item Type: MPRA Paper
• Language: English
• Keywords: fairness; justice; risk
• Subjects: D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior

References

Andrews, Donald W. K. (2001). “Testing when a parameter is on the boundary of the maintained hypothesis," Econometrica, 69(3): 683-734.

Arneson, Richard (1989). “Equality and equal opportunity for welfare," Philosophical Studies, 56(1): 159-194.

Babicky, Vitezslav (2003). “Fairness under risk: Insights from dictator games," CERGE-EI Working Paper No. 217.

Babicky, Vitezslav and Andreas Ortmann (2005). “Fairness in risky environments: Theory and evidence," Working paper.

Berndt, Ernst R., Bronwyn H. Hall, Robert. E. Hall, and Jerry A. Hausman (1974). “Estimation and inference in nonlinear structural models," Annals of Economic and Social Measurement, 3(4): 653-665.

Brennan, Geoffrey, Luis G. Gonzalez, Werner Güth, and M. Vittoria Levati (2008). “Attitudes toward private and collective risk in individual and strategic choice situations," Journal of Economic Behavior & Organization, 67(1): 253-262.

Cappelen, Alexander W., Astri Drange Hole, Erik Ø. Sørensen, and Bertil Tungodden (2007a). “The importance of moral reflection and self-reported data in a dictator game with production," Discussion paper SAM 40/07, Department of Economics, Norwegian School of Economics and Business Administration.

Cappelen, Alexander W., Astri Drange Hole, Erik Ø. Sørensen, and Bertil Tungodden (2007b). “The pluralism of fairness ideals: An experimental approach," American Economic Review, 97(3): 818-827.

Cappelen, Alexander W. and Ole Frithjof Norheim (2005). “Responsibility in health care - a liberal egalitarian approach," Journal of Medical Ethics, 31(8): 476-480.

Charness, Gary and Matthew Rabin (2002). “Understanding social preferences with simple tests," Quarterly Journal of Economics, 117(3): 817-869.

Cherry, Todd L., Peter Frykblom, and Jason F. Shogren (2002). “Hardnose the dictator," American Economic Review, 92(4): 1218-1221.

Diamond, Peter A. (1967). “Cardinal welfare, individualistic ethics, and interpersonal comparisons of utility: Comment," Journal of Political Economy, 75(5): 765-766.

Dworkin, Ronald (1981a). “What is equality? Part 1: Equality of welfare," Philosophy and Public Affairs, 10(3): 185-246.

Dworkin, Ronald (1981b). “What is equality? Part 2: Equality of resources," Philosophy and Public Affairs, 10(4): 283-345.

Engelmann, Dirk and Martin Strobel (2004). “Inequality aversion, effciency, and maximin preferences in simple distribution experiments," American Economic Review, 94(4): 857-869.

Fehr, Ernst and Klaus M. Schmidt (1999). “A theory of fairness, competition and cooperation," Quarterly Journal of Economics, 114(3): 817-868.

Ferrall, Christopher (2005). “Solving finite mixture models: Effcient computation in economics under serial and parallel execution," Computational Economics, 25(4): 343-379.

Fleurbaey, Marc (2002). “Equality of resources revisited," Ethics, 113(1): 82-105.

Fleurbaey, Marc (2007). “Assessing risky social situations," mimeo, CNRS-CERSES, France.

Fried, Barbara H. (2003). “Ex ante/ex post," The Journal of Contemporary Legal Issues, 13: 123-160.

Frohlich, Norman, Joe Oppenheimer, and Anja Kurki (2004). “Modeling other-regarding preferences and an experimental test," Public Choice, 119(1-2): 91-117.

Hammond, Peter J. (1981). “Ex-ante and ex-post welfare optimality under uncertainty," Economica, 48(191): 235-250.

Harel, Alon, Zvi Safra, and Uzi Segal (2005). “Ex-post egalitarianism and legal justice," Journal of Law, Economics and Organization, 21(1): 57-75.

Harsanyi, John C. (1955). “Cardinal welfare, individualistic ethics, and interpersonal comparisons of utility," Journal of Political Economy, 63(4): 309-321.

Konow, James (2000). “Fair shares: Accountability and cognitive dissonance in allocation decisions," American Economic Review, 90(4): 1072-1091.

Konow, James (2009). “Is fairness in the eye of the beholder? An impartial spectator analysis of justice," Social Choice and Welfare, 33(1): 101-127.

Konow, James, Tatsuyoshi Saijo, and Kenju Akai (2009). "Morals and mores? Experimental evidence on equity and equality," Mimeo, Loyola Marymount University.

Krawczyk, Michal (2010). “A glimpse through the veil of ignorance: Equality of opportunity and support for redistribution," Journal of Public Economics, 94(1-2): 131-141.

Krawczyk, Michal and Fabrice Le Lec (2008). “Social decisions under risk. Evidence from the probabilistic dictator game," Manuscript.

Lippert-Rasmussen, Kasper (2001). “Egalitarianism, option luck, and responsibility," Ethics, 111(3): 548-579.

Magdalou, Brice, Dimitri Dubois, and Phu Nguyen-Van (2009). “Risk and inequality aversion in social dilemmas," mimeo, Universite des Antilles et de la Guyane.

Shogren, Jason F. (1992). “An experiment on Coasian bargaining power over ex ante lotteries and ex post rewards," Journal of Economic Behavior and Organization, 17(1): 153-169.

Vallentyne, Peter (2002). “Brute luck, option luck, and equality of initial opportunities," Ethics, 112(3): 529-557.

Zizzo, Daniel John (2003). “Money burning and rank egalitarianism with random dictators," Economics Letters, 81(2): 263-266.

Zizzo, Daniel John (2004). “Inequality and procedural fairness in a money burning and stealing experiment," in Frank Cowell (ed.), “Inequality, Welfare and Income Distribution: Experimental Approaches," volume 11 of Research on Economic Inequality, Elsevier, pp. 215-247.

Zizzo, Daniel John and Andrew Oswald (2001). “Are people willing to pay to reduce others' incomes?" Annales d'Economie et de Statistique, 63-64: 39-62.