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Inequality aversion and the house money effect

Published online by Cambridge University Press:  14 March 2025

Astrid Dannenberg ,
Thomas Riechmann ,
Bodo Sturm  and
Carsten Vogt
Astrid Dannenberg*
Affiliation:
Centre for European Economic Research (ZEW), Mannheim, Germany
Thomas Riechmann*
Affiliation:
Faculty of Business Studies and Economics, University of Kaiserslautern, Kaiserslautern, Germany
Bodo Sturm*
Affiliation:
Centre for European Economic Research (ZEW), Mannheim, Germany Department of Business Administration, Leipzig University of Applied Sciences, Leipzig, Germany
Carsten Vogt*
Affiliation:
Department of Business Administration, Bochum University of Applied Sciences, Bochum, Germany
*
[email protected]
[email protected]
[email protected]
[email protected]
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Abstract

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.

Keywords

Individual preferencesInequality aversionExperimental economicsPrisoner’s dilemmaHouse money

JEL classification

H41: Public Goods C91: Laboratory, Individual Behavior C92: Laboratory, Group Behavior
Type
Research Article
Information
Experimental Economics , Volume 15 , Issue 3 , September 2012 , pp. 460 - 484
Copyright
Copyright © 2011 Economic Science Association

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