Inequality Aversion vs Altruism: Experimental Evidence

The literature on dictator games has long debated whether inequality aversion or altruism is the motivation behind giving, but generally assumes the two preferences are mutually exclusive. This paper proposes an alternative theory suggesting subjects can express both altruism and inequality aversion. To test this theory a novel version of a three-player dictator game is introduced. The dictator chooses how to distribute a fixed endowment between two recipients, and is able to earn a private return based on the amount of inequality resulting from the allocation decision. To ensure inequality averse preferences can be separately identified from self-regarding behavior, the domain of decision environments is restricted to those in which the dictator receives the highest payout. Results show more than half of subjects express behavior in line with both altruism and inequality aversion. Furthermore, the results suggest the social preferences displayed can be influenced by the order of decision environments. The implications of these findings stress the importance of accounting for interactions between social preferences as well as a counterbalanced experimental design.