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Inequity aversion


Inequity aversion (IA) is the preference for fairness and resistance to incidental inequalities. The social sciences that study inequity aversion include sociology, economics, psychology, anthropology, and ethology.

Inequity aversion research on humans mostly occurs in the discipline of economics though it is also studied in sociology.

Research on inequity aversion 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 inequity aversion (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 {1,2,...,n} who receive pecuniary outcomes xi. Then the utility to person i would be given by

where α parametrizes the distaste of person i for disadvantageous inequality in the first nonstandard term, and β parametrizes the distaste of person i for advantageous inequality in the final term.

Fehr and Schmidt showed that disadvantageous inequity aversion 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 inequity aversion's rejection of injustice, stable cooperation 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.


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