Inequity aversion

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Inequity aversion is the preference for 'fair rewards' and 'fairplay' in anthropology (in the sub-disciplines sociology, economics, sociobiology, psychology, evolutionary psychology, and primate behaviourology).

Contents 1 The brown capuchin inequitable payment experiment 1.1 Remarks on the brown capuchin experiment 2 IA in humans 2.1 Punishing unjust success and Game Theory 2.2 Experimental economics 2.3 Inequity Aversion within companies 2.4 IA's critics 3 Social inequity aversion 4 See also 5 References 6 External links 7 Footnotes

[edit] The brown capuchin inequitable payment experiment

In a famous capuchin monkey experiment in 2003, Sarah Brosnan and Frans de Waal showed that these social primates would prefer receiving nothing to receiving a reward awarded inequitably. The experiment went like this:

1. A group of female capuchins learned to pay for cucumber 'rewards' with rock 'tokens' from a researcher.
2. The exchange of token for reward was done in pairs of monkeys.
3. After receiving a cucumber slice for a rock the first monkey would witness the second passing her token to the researcher.
4. This second monkey would sometimes get the same thing (a cucumber slice) but would sometimes get something better (a grape).
5. The experiment monitored the first capuchin's response to the payment the next received.

Monkeys who saw their counterpart getting the same deal as they had done happily ate their cucumber. However, monkeys who witnessed the next monkey 'unjustly' receiving a better exchange rate for their rock had some dramatic negative reactions:

• Cucumber recipients wouldn't eat when they saw another monkey get a grape.
• They often refused to exchange their tokens for anything in future sessions.
• They sometimes hurled the cucumber back at the researcher.

Some anthropologists agree that this research suggests an evolutionary (innate, biological) basis of a social sense of "fair play" in primates. (Others, including some evolutionary psychologists argue that the "Inequity aversion" is learned behaviour.) Aside from humans and brown capuchins, there is evidence for inequity aversion in chimpanzees. A similar importance on relative 'equity' and 'justice' as opposed to absolute utility has not been found in other biological orders.

In 2004, Brosnan, De Waal and Schiff presented a highly quantitative analysis of chimpanzee inequity aversion to the Royal Society, correlating the length of time a group has stayed together (social closeness), with its tolerance for inequitable payment for equal work. Although they were unable to identify the exact cause of the variations in IA response they found between groups, they speculate that if chimpanzee sibling had grown up sharing food, an inequitable division of food could easily be rectified. For instance, if capuchins always shared grapes with the rest of the group, then one member of that group might be happy to see another receive a grape, however ill-deserved.

Brosnan, et al. define the IA they found in chimpanzees:

"We demonstrate that, like capuchin monkeys, chimpanzees show a response to inequity of rewards that is based upon the partner receiving the reward rather than the presence of the reward alone."

[edit] Remarks on the brown capuchin experiment

• Female capuchins were tested because they monitor equity, or fair treatment, more closely than the male, according to Brosnan.
• A capuchin receiving a cucumber slice didn't take her anger out on a grape-receiving capuchin. Brosnan says that "they never blamed them". Based on the direction the cucumber was thrown in, it appears that the 'blame' for the inequity was (correctly) apportioned by the disgruntled capuchin on the scientists.
• Although some individuals continued to work with the researchers after witnessing inequitable payment, "There were none that didn't care" according to Dr Brosnan.

[edit] IA in humans

Inequity aversion (IA) research in humans falls mostly into the discipline of economics, but, since it can create models of 'fair', 'cooperative', or 'noncooperative' behaviour it has also been classified as sociology.

In 1978 Walster & Berscheid's Equity: theory and research researched 'overcompensation' effects on the behaviour of people who feel 'guilty' or unhappy to have received an undeserved reward. (The capuchin experiment's grape-receiving monkeys apparently didn't react in a guilty way, perhaps because they were too busy eating their "highly prized" grape. However, it seems that humans are sensitive to injustices in their favour as well as against them.)

In 1999 Ernst Fehr and Klaus M. Schmidt defined IA as:

"Inequity aversion means that people resist inequitable outcomes; i.e., they are willing to give up some material payoff to move in the direction of more equitable outcomes".

According to Fehr & Schmidt, it was in this 1999 paper in The Quarterly Journal of Economics that specified the modern form of economic Inequity aversion¹. They analysed two forms of IA:

• Disadvantageous IA: (envy) disliking if another individual receives more than yourself.
• Advantageous IA: (guilt) disliking if you receive more than another individual (i.e. overcompensation).

Fehr & Schmit called these the "self-centred" forms of IA, in that they are not concerned with generalized inequality, or injustice of outcomes between third parties. Envy and guilt always refer to the comparison of one's self with others.

[edit] Punishing unjust success and Game Theory

Fehr and Schmidt showed that disadvantageous IA manifests itself in humans as the "willingness to sacrifice potential gain to block another individual from receiving a superior reward". They argue that this, apparently self-destructive, response is essential in creating an environment in which bilateral bargaining can thrive. Without IA's pathological hatred of injustice, stable co-operation would be harder to maintain (for instance, there would be more opportunities for successful free riders).

[edit] Experimental economics

Inequity aversion appears as a very strong "irrational" result in three classics of experimental economics:

1. Dictator game - The subject chooses how a reward should be split between herself and another subject. In a one-time game, typical experiments produce an "irrational" even split of the bounty. If the dictator acted "rationally," the split would consist of one cent for the partner and the remaining balance for the dictator.
2. Ultimatum game - The dictator game is played, but the partner is allowed to veto the entire deal, so that both subjects receive nothing. The partner typically vetos the deal when they see the split as inequitable (exactly as brown capuchins would). People consistently prefer getting nothing (and thus punishing the first subject, too) to receiving a share of the pie they perceive as unjustly small. In this experiment there is also the possibility of punishing the proposer, which may create a separate revenge motive the capuchins never had.
3. Trust game - The same result as found in the dictator game shows up when the dictator's initial endowment is provided by her partner, even though this requires the first player to trust that something will be returned (reciprocity). This experiment often yields a 50:50 split of the endowment, and has been used as evidence of the inequity aversion model.

[edit] Inequity Aversion within companies

Surveys of employee opinion within firms have shown modern labour economists that IA is very important to them. Employees compare not only relative salaries, but also relative performance against that of co-workers. Where these comparisons lead to guilt or envy Inequity Aversion may lower employee morale. According to Bewley (1999) the main reason that managers create formal pay structures is so that the inter-employee comparison is seen to be 'fair', which they considered 'key' for morale and job performance.

It is natural to think of IA leading to greater 'solidarity' within the labour pool, to the benefit of the average employee. However, a 2002 paper by Pedro Rey Biel shows that this assumption can be subverted, and that an employer can use Inequity Aversion to get higher performance for less pay than would be possible otherwise ([1]). In Biel's model this is done by moving away from formal pay structures and using off-equilibrium bonus payments as incentives for extra performance. He shows that the optimal contract for IA employees is less generous at the optimal production level than contracts for 'standard agents' (who don't have inequity aversion) in an otherwise identical two-employee model.

[edit] IA's critics

in 2004 Dirk Engelmann and Martin Strobel performed experimental economics to test the predictions of IA, and found inconsistencies². Although it can hardly be expected that such a simple model will produce falsifiable results in a complex area like human psychology there may be other, equally simple models that fit the data better. (See Bounded rationality.) For instance, the Raúl López Pérez alternative: Anger and Guilt (2004).

In 2005 Avner Shaked published a paper entitled "The Rhetoric of Inequity Aversion" that attacked the IA papers of Fehr & Schmidt as unsound economics. Although Shaked's attack was based on the quality of Fehr & Schmidt's IA work it isn't an attack on the usefulness of the theory itself.

[edit] Social inequity aversion

Fehr & Schmidt's IA model may partially explain the widespead opposition to Economic inequality in democracies, although a distinction should be drawn between IA's "guilt" and Egalitarianism's "compassion", which does not necessarily imply injustice.

Inequity aversion should not be confused with the arguments against the consequences of inequality. For example, the pro-publicly-funded health care slogan "Hospitals for the poor become poor hospitals" directly objects to a predicted decline in medical care, not the health-care apartheid that is supposed to cause it. The argument that average medical outcomes improve with reduction in healthcare inequality (at the same total spending) is separate from the case for public healthcare on the grounds of inequity aversion.

[edit] See also

• Reciprocity (cultural anthropology), Altruism
• Economic inequality
• Risk Aversion, Equality of outcome

[edit] References

• Bewley, T. (1999) Why wages don’t fall during a Recession. Harvard University Press, ISBN 0-674-95241-3
• Brosnan, Sarah F. and de Waal, Frans B. M. (2003) Monkeys reject unequal pay. Nature 425, page 297
• Brosnan, Schiff, de Wall (2004) Tolerance for inequity may increase with social closeness in chimpanzees, Proceedings of the royal society ([2] )
• Fehr, E. and Schmidt, K. M. 1999 A theory of fairness, competition, and cooperation. The Quarterly Jornal of Economics. 114, 817–868.
• Shaked, Avner, 2005. The Rhetoric of Inequity Aversion Bonn University([3])

[edit] External links

• Summary of the "Monkeys like fair play" Capuchin experiment for kids, from the BBC.
• "Monkeys Show Sense Of Fairness, Study Says" (National Geographic News, September 17, 2003).
• Sarah Brosnan's Emory University homepage listing her inequity research publications.
• Fehr & Schmidt's March 2005 response to Shaked's critique
• Anger and Guilt: An Alternative to Inequity Aversion Models - Raúl López Pérez defines the Fehr and Schmidt IA model mathematically as well as proposing a different formulational of 'emotional' deviations from rationality.

[edit] Footnotes

¹ Berg, Joyce E., and Thomas A. Rietz's University of Iowa Discussion Paper, from 1997 Do Unto Others: A Theory and Experimental Test of Interpersonal Factors in Decision Making Under Uncertainty examines the increased risk aversion from lottery-choice games to multi-party dealing. It suggests that this could be explained by altruism and a concern for an equitable distribution among all parties (fairness). This paper also used the phrase 'inequity aversion'.

² The alternative hypothesis that Fehr and Schmidt's Inequity Aversion (IA) model is most commonly tested against is Charness and Rabin's 2002 quasi-maximin model, which predicts a preference for maximizing both the aggregate reward and the reward of the party doing the worst. Engelmann and Strobel's experiments from 2004 seem to fit the quasi-maximin predictions better than the IA. Quasi-maximin is more concerned with economic efficiency than fairness, and may predominate when the 'players' know one another or are playing for psychologically low stakes. Other empirical results give IA the greater predictive power. For instance, Güth, Kliemt and Ockenfel (2003), and Chmura, Kube, Pitz, & Puppe (Working Paper, 2004) find that 'fairness' dominates when the payoff asymmetry is large.