A previous version of this paper was circulated under the title “Actions and Beliefs: Estimating Distribution Based Preferences Using a Large Scale Experiment With Probability Questions on Expectations.” We thank Vera Toepoel and Marcel Das and his team at CentERdata for support throughout the experiment. We are also grateful for the comments from participants at the Princeton workshop in econometrics and experimental economics, the 2005 ESA North American Meeting in Tucson, the 2006 ESEM meeting in Vienna, seminar participants at Concordia University, Montréal, Queens University, Kingston, Free University, Brussels, and Tor Vergata University, Rome, three anonymous referees, and a co-editor. The first author thanks the Canada Chair of Research in the Economics of Social Policies and Human Resources for support. The second author thanks the Economic Science Laboratory at the University of Arizona for their kind hospitality.
Measuring Inequity Aversion in a Heterogeneous Population Using Experimental Decisions and Subjective Probabilities
Article first published online: 28 JUN 2008
Copyright © 2008 by The Econometric Society
Volume 76, Issue 4, pages 815–839, July 2008
How to Cite
Bellemare, C., Kröger, S. and Van Soest, A. (2008), Measuring Inequity Aversion in a Heterogeneous Population Using Experimental Decisions and Subjective Probabilities. Econometrica, 76: 815–839. doi: 10.1111/j.1468-0262.2008.00860.x
- Issue published online: 28 JUN 2008
- Article first published online: 28 JUN 2008
- Manuscript received July, 2005; final revision received February, 2008.
- Ultimatum game;
- inequity aversion;
- subjective expectations
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.