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

C. Bellemare, S. Kroger, A.H.O. van Soest

Research output: Contribution to journalArticleScientificpeer-review

124 Citations (Scopus)
352 Downloads (Pure)

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 non-linear preferences for equity and expectations to vary across socio-economic 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.
Original languageEnglish
Pages (from-to)815-839
JournalEconometrica
Volume76
Issue number4
Publication statusPublished - 2008

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