Inequality Aversion and Efficiency with Ordinal and Cardinal Social Preferences – An Experimental Study

39 Pages Posted: 25 Feb 2010

See all articles by Dorothea Herreiner

Dorothea Herreiner

Loyola Marymount University

Clemens Puppe

University of Karlsruhe; Karlsruhe Institute of Technology

Date Written: August 20, 2009

Abstract

In this paper, we report on a series of free-form bargaining experiments in which two players have to distribute four indivisible goods among themselves. In one treatment, players are informed about the monetary payoffs associated with each bundle of goods; in a second treatment only the ordinal ranking of the bundles is given. We find that in both cases, inequality aversion plays a prominent role. In the ordinal treatment, individuals apparently use the ranks in the respective preference orderings over bundles of goods as a substitute for the unknown monetary value. Allocations that distribute the value (money or ranks, respectively) most equally serve as natural “reference points” for the bargaining processes. Frequently, such “equal split” allocations are chosen by our subjects even though they are Pareto dominated; but also if they are rejected for that reason they matter in a specific way: whether a Pareto optimal allocation is chosen or not depends on whether or not it is a Pareto improvement relative to the equal split. Interestingly, we find much less Pareto-damaging behavior due to inequality aversion in the ordinal treatment.

Suggested Citation

Herreiner, Dorothea K. and Puppe, Clemens and Puppe, Clemens, Inequality Aversion and Efficiency with Ordinal and Cardinal Social Preferences – An Experimental Study (August 20, 2009). Journal of Economic Behavior and Organization, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1558363 or http://dx.doi.org/10.2139/ssrn.1558363

Dorothea K. Herreiner

Loyola Marymount University ( email )

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Los Angeles, CA 90045
United States
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HOME PAGE: http://myweb.lmu.edu

Clemens Puppe (Contact Author)

University of Karlsruhe ( email )

Kaiserstrasse 12
Karlsruhe, 76128
Germany

HOME PAGE: http://www.wior.uni-karlsruhe.de/LS_Puppe/Personal/puppe_home

Karlsruhe Institute of Technology ( email )

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Karlsruhe, Baden Württemberg 76131
Germany

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