When Equality Trumps Reciprocity: Evidence from a Laboratory Experiment

Abstract

Inequity aversion and reciprocity have been identified as two primary motivations underlying human decision making. However, because income and wealth inequality exist to some degree in all societies, these two key motivations can point to different decisions. In particular, when a beneficiary is less wealthy than a benefactor, a reciprocal action can lead to greater inequality. In this paper we report data from a trust game variant where trustees' responses to kind intentions generate inequality in favor of investors. In relation to a standard trust game treatment where trustees' responses reduce inequality, the proportion of non-reciprocal decisions is twice as large when reciprocity promotes inequality. Moreover, we find investors expect that this will be the case. Overall, although both motives clearly play a role, more of our data can be explained by inequality aversion than by reciprocity. Our results call attention to the potential importance of inequality in principal-agent relationships, and have important implications for designing policies aimed at promoting cooperation.

Keywords: inequality aversion, reciprocity, trust game, experimental economics

JEL Classification: C91, C72, D63