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Measuring inequity aversion in a heterogeneous population using experimental decisions and subjective probabilities

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  • Bellemare, C.

    (Tilburg University)

  • Kroger, S.

    (Tilburg University)

  • Soest, A.H.O. van

    (Tilburg University)

Abstract

We combine choice data in the ultimatum game with the expectations of proposers elicited by subjective probability questions to estimate a structural model of decision making under uncertainty. The model, estimated using a large representative sample of subjects from the Dutch population, allows both nonlinear preferences for equity and expectations to vary across socioeconomic groups. Our results indicate that inequity aversion to one's own disadvantage is an increasing and concave function of the payoff difference. We also find considerable heterogeneity in the population. Young and highly educated subjects have lower aversion for inequity than other groups. Moreover, the model that uses subjective data on expectations generates much better in- and out-of-sample predictions than a model which assumes that players have rational expectations. Copyright Copyright 2008 by The Econometric Society.

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Bibliographic Info

Paper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-376716.

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Date of creation: 2008
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Publication status: Published in Econometrica (2008) v.76, p.815-839
Handle: RePEc:ner:tilbur:urn:nbn:nl:ui:12-376716

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Web page: http://www.tilburguniversity.edu/

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  1. Werner Güth & Carsten Schmidt & Matthias Sutter, 2003. "Fairness in the Mail and Opportunism in the Internet: A Newspaper Experiment on Ultimatum Bargaining," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 243-265, 05.
  2. Gaechter,S. & Riedl,A., 2002. "Moral property rights in bargaining," Working Papers 330, Bielefeld University, Center for Mathematical Economics.
  3. Heike Hennig-Schmidt & Zhu-Yu Li & Chaoliang Yang, 2004. "Why People Reject Advantageous Offers – Non-monotone Strategies in Ultimatum Bargaining," Bonn Econ Discussion Papers bgse22_2004, University of Bonn, Germany.
  4. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
  5. Guth, Werner & Huck, Steffen & Muller, Wieland, 2001. "The Relevance of Equal Splits in Ultimatum Games," Games and Economic Behavior, Elsevier, vol. 37(1), pages 161-169, October.
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