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Choice set, relative income, and inequity aversion: An experimental investigation

Listed author(s):
  • He, Haoran
  • Wu, Keyu

Inequity aversion preference has been widely applied in interpretations of various economic behaviors. A rapidly growing literature has been attempting to measure the strength of inequity aversion preferences as accurately as possible. We vary two factors that might affect the accuracy of the measurement of inequity aversion preference, i.e., choice sets with different underlying inequity aversion strength ranges and with different relative income inequities while absolute income inequities remain fixed. We find that unidirectional changes in the choice sets for disadvantageous and advantageous inequity aversion preferences significantly bias the measured strength of both preferences in the same directions of the changes and that the variance in inequity aversion increases with the range of choice sets. Moreover, a decrease in relative income inequity raises the measured strength of advantageous inequity aversion but does not affect disadvantageous inequity aversion preference. Our results suggest controlling for choice sets and relative income inequity between players to improve the measurement accuracy of inequity aversion preference.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167487016301660
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Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 54 (2016)
Issue (Month): C ()
Pages: 177-193

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Handle: RePEc:eee:joepsy:v:54:y:2016:i:c:p:177-193
DOI: 10.1016/j.joep.2016.04.002
Contact details of provider: Web page: http://www.elsevier.com/locate/joep

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