Hostname: page-component-7b9c58cd5d-wdhn8 Total loading time: 0 Render date: 2025-03-15T17:10:04.264Z Has data issue: false hasContentIssue false

Inequality aversion and the house money effect

Published online by Cambridge University Press:  14 March 2025

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

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.

Type
Research Article
Copyright
Copyright © 2011 Economic Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

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), 516. 10.1007/s10683-006-1467-1CrossRefGoogle Scholar
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), 331347. 10.1006/obhd.1994.1063CrossRefGoogle Scholar
Babcock, L., & Loewenstein, G. (1997). Explaining bargaining impasse: the role of self-serving biases. Journal of Economic Perspectives, 11(1), 109126. 10.1257/jep.11.1.109CrossRefGoogle Scholar
Ben-Ner, A., Putterman, L., Kong, F., & Magan, D. (2004). Reciprocity in a two-part dictator game. Journal of Economic Behavior & Organization, 53(3), 333352. 10.1016/j.jebo.2002.12.001CrossRefGoogle Scholar
Blanco, M., Engelmann, D., & Normann, H.-T. (2011). A within-subject analysis of other-regarding preferences. Games and Economic Behavior, 72(2), 321338. 10.1016/j.geb.2010.09.008CrossRefGoogle Scholar
Brandts, J., & Charness, G. (2011). The strategy versus the direct-response method: a first survey of experimental comparisons. Experimental Economics, 14(3), 375398. 10.1007/s10683-011-9272-xCrossRefGoogle Scholar
Bolton, G. E., & Ockenfels, A. (2000). ERC. A theory of equity, reciprocity and competition. American Economic Review, 90(1), 166193. 10.1257/aer.90.1.166CrossRefGoogle Scholar
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
Charness, G., & Grosskopf, B. (2001). Relative payoffs and happiness: an experimental study. Journal of Economic Behavior & Organization, 45, 301328. 10.1016/S0167-2681(01)00148-2CrossRefGoogle Scholar
Charness, G., & Rabin, M. (2002). Understanding social preferences with simple tests. The Quarterly Journal of Economics, 117, 817868. 10.1162/003355302760193904CrossRefGoogle Scholar
Cherry, T. L. (2001). Mental accounting and other-regarding behaviour: evidence from the lab. Journal of Economic Psychology, 22(5), 605615. 10.1016/S0167-4870(01)00058-7CrossRefGoogle Scholar
Cherry, T. L., Frykblom, P., & Shogren, J. F. (2002). Hardnose the dictator. American Economic Review, 92(4), 12181221. 10.1257/00028280260344740CrossRefGoogle Scholar
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), 357365. 10.1016/j.jebo.2003.11.010CrossRefGoogle Scholar
Clark, J. (2002). House money effects in public good experiments. Experimental Economics, 5, 223231. 10.1023/A:1020832203804CrossRefGoogle Scholar
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.CrossRefGoogle Scholar
Dufwenberg, M., & Kirchsteiger, G. (2004). A theory of sequential reciprocity. Games and Economic Behavior, 47, 268298. 10.1016/j.geb.2003.06.003CrossRefGoogle Scholar
Eckel, C. C., & Grossman, P. J. (1996). Altruism in anonymous dictator games. Games and Economic Behavior, 16, 181191. 10.1006/game.1996.0081CrossRefGoogle Scholar
Engelmann, D., & Strobel, M. (2004). Inequality aversion, efficiency, and maximin preferences in simple distribution experiments. American Economic Review, 94(4), 857869. 10.1257/0002828042002741CrossRefGoogle Scholar
Falk, A., & Fischbacher, U. (2006). A theory of reciprocity. Games and Economic Behavior, 54(2), 293315. 10.1016/j.geb.2005.03.001CrossRefGoogle Scholar
Falk, A., Fehr, E., & Fischbacher, U. (2008). Games and Economic Behavior, 62, 287303. 10.1016/j.geb.2007.06.001CrossRefGoogle Scholar
Fehr, E., & Gächter, S. (2000). Cooperation and punishment in public goods experiments. American Economic Review, 90(4), 980994. 10.1257/aer.90.4.980CrossRefGoogle Scholar
Fehr, E., & Schmidt, K. M. (1999). A theory of fairness, competition, and cooperation. The Quarterly Journal of Economics, 114(3), 817868. 10.1162/003355399556151CrossRefGoogle Scholar
Fehr, E., Schmidt, K. M. Kolm, S.-C., & Ythier, J. M. (2006). The economics of fairness, reciprocity and altruism—experimental evidence and new theories. Handbook on the economics of giving, reciprocity and altruism, Amsterdam: Elsevier 615691.Google Scholar
Fischbacher, U. (2007). z-Tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10(2), 171178. 10.1007/s10683-006-9159-4CrossRefGoogle Scholar
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), 541556.CrossRefGoogle Scholar
Goeree, J. K., & Holt, C. A. (2000). Asymmetric inequality aversion and noisy behavior in alternating-offer bargaining games. European Economic Review, 44(4–6), 10791089. 10.1016/S0014-2921(99)00048-3CrossRefGoogle Scholar
Greiner, B. Kremer, K., & Macho, V. (2003). An online recruitment system for economic experiments. Forschung und wissenschaftliches Rechnen 2003. GWDG Bericht 63, Göttingen: Ges. für Wiss. Datenverarbeitung 7993 2004.Google Scholar
Harrison, G. (2007). House money effects in public good experiments: comment. Experimental Economics, 10(4), 429437. 10.1007/s10683-006-9145-xCrossRefGoogle Scholar
Hoffman, E., McCabe, K., Shachat, K., & Smith, V. (1994). Preferences, property rights and anonymity in bargaining games. Games and Economic Behavior, 7(3), 346380. 10.1006/game.1994.1056CrossRefGoogle Scholar
Iriberri, N., & Rey-Biel, P. (2011). The role of role uncertainty in modified dictator games. Experimental Economics, 14(2), 160180. 10.1007/s10683-010-9261-5CrossRefGoogle Scholar
Keasey, K., & Moon, P. (1996). Gambling with the house money in capital expenditure decisions: an experimental analysis. Economics Letters, 50(1), 105110. 10.1016/0165-1765(95)00726-1CrossRefGoogle Scholar
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), 209215.CrossRefGoogle Scholar
Kosfeld, M., Okada, A., & Riedl, A. (2009). Institution formation in public goods games. American Economic Review, 99(4), 13351355. 10.1257/aer.99.4.1335CrossRefGoogle Scholar
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), 411428. 10.1007/s10683-006-9144-yCrossRefGoogle Scholar
Ockenfels, A., & Weimann, J. (1999). Types and patterns: an experimental East-West-German comparison of cooperation and solidarity. Journal of Public Economics, 71(2), 275287. 10.1016/S0047-2727(98)00072-3CrossRefGoogle Scholar
Oxoby, R. J., & Spraggon, J. (2008). Mine and yours: property rights in dictator games. Journal of Economic Behavior & Organization, 65(3–4), 703713. 10.1016/j.jebo.2005.12.006CrossRefGoogle Scholar
Reinstein, D., & Riener, G. (2009). House money effects on charitable giving: an experiment. Discussion paper.Google Scholar
Rosenboim, M., & Shavit, T. (2011). Whose money is it anyway? Using prepaid incentives in experimental economics to create a natural environment. Experimental Economics.Google Scholar
Ruffle, B. J. (1998). More is better, but fair is fair: tipping in dictator and ultimatum games. Games and Economic Behavior, 23(2), 247265. 10.1006/game.1997.0630CrossRefGoogle Scholar
Teyssier, S. (2009). Inequity and risk aversion in sequential public good games. Working Paper 09-19, GATE, Écully.CrossRefGoogle Scholar
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), 643660. 10.1287/mnsc.36.6.643CrossRefGoogle Scholar