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Coupled Lotteries – A New Method to Analyze Inequality Aversion

Author

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  • Koch, Melanie

    (DIW Berlin)

  • Menkhoff, Lukas

    (HU and DIW Berlin)

  • Schmidt, Ulrich

    (University of Kiel and ifW Kiel)

Abstract

We develop and implement a new measure for inequality aversion: two peers are endowed with identical binary lotteries and the only choice they make is whether they want to play out the lotteries independently or with perfect positive correlation (coupling). Coupling has no other effect than preventing outcome inequality. We implement the method in a survey in rural Thailand as well as a supplemental sample in a lab in Germany. As theoretically expected, coupling is related to being more risk averse, to having social status concerns, and to relying more often on formal and informal insurance. However, coupling is not related to giving in the dictator game.

Suggested Citation

  • Koch, Melanie & Menkhoff, Lukas & Schmidt, Ulrich, 2019. "Coupled Lotteries – A New Method to Analyze Inequality Aversion," Rationality and Competition Discussion Paper Series 185, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:185
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    More about this item

    Keywords

    inequality aversion; correlated risk; social status concerns;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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