Endogenous preferences and the importance of status
Lead Research Organisation:
University of Nottingham
Department Name: Sch of Economics
Abstract
This PhD will investigate how status differences affect individual preferences and social inequality. According to Ball et al. (2001) status is defined as "a ranking in a hierarchy that is socially recognised and typically carries with it the expectation of entitlement to certain resources." Apart from the prospect of preferential treatment, people seem to care inherently about their rank and value status as an emotional end in itself (Huberman et al., 2004; Heffetz & Frank, 2010). The relative nature of status automatically induces beliefs about the worth of the respective position, thereby affecting expectations about the self and others (Ridgeway, 2014).
As status is inherently related to expectations of entitlement, status beliefs should affect fairness judgements and social preferences. Beginning with Ball & Eckel (1998) several studies have investigated status differences in various economic games. A consistent finding is that low status individuals have an important disadvantage in allocation decisions. They are offered signicantly less than high status individuals in ultimatum games (Ball & Eckel, 1998)1, achieve worse outcomes in bargaining games (Ball et al., 2001) and are more likely to adjust in coordination games (De Kwaadsteniet & Van Dijk, 2010). These findings seem to be driven by a higher acceptance of disadvantageous inequality (Fehr et al., 2008; Albrecht et al., 2013). In fact, low status individuals are more likely to accept unfair offers in ultimatum games, particularly from high status proposers (Blue et al., 2016; Hu et al., 2015). A curious question in this context is whether low status individuals are just more likely to accept disadvantageous outcomes or if they actually shift their perception of what is fair.2 While low status individuals could reluctantly accept unequal outcomes but at the same time be dissatised with the current situation, it is also possible that status explicitly affects norms of fairness, leading to a personal acceptance of present circumstances. An answer to this question can provide interesting insights into the stability and maintenance of status differences as well as their role in sustaining social inequalities. A possibility to investigate the issue would be to directly integrate fairness elicitations into an ultimatum game with status differences.
The three key research questions are as follows:
RQ1: Is the increased acceptance of disadvantageous inequality by low status individuals caused by a shift in fairness preferences?
RQ2: How should status differences be induced in experimental studies? How does status affect individual behaviour and preferences in different experimental games?
RQ3: Through which channels can a mentoring programme affect the personal development of low status children?
As status is inherently related to expectations of entitlement, status beliefs should affect fairness judgements and social preferences. Beginning with Ball & Eckel (1998) several studies have investigated status differences in various economic games. A consistent finding is that low status individuals have an important disadvantage in allocation decisions. They are offered signicantly less than high status individuals in ultimatum games (Ball & Eckel, 1998)1, achieve worse outcomes in bargaining games (Ball et al., 2001) and are more likely to adjust in coordination games (De Kwaadsteniet & Van Dijk, 2010). These findings seem to be driven by a higher acceptance of disadvantageous inequality (Fehr et al., 2008; Albrecht et al., 2013). In fact, low status individuals are more likely to accept unfair offers in ultimatum games, particularly from high status proposers (Blue et al., 2016; Hu et al., 2015). A curious question in this context is whether low status individuals are just more likely to accept disadvantageous outcomes or if they actually shift their perception of what is fair.2 While low status individuals could reluctantly accept unequal outcomes but at the same time be dissatised with the current situation, it is also possible that status explicitly affects norms of fairness, leading to a personal acceptance of present circumstances. An answer to this question can provide interesting insights into the stability and maintenance of status differences as well as their role in sustaining social inequalities. A possibility to investigate the issue would be to directly integrate fairness elicitations into an ultimatum game with status differences.
The three key research questions are as follows:
RQ1: Is the increased acceptance of disadvantageous inequality by low status individuals caused by a shift in fairness preferences?
RQ2: How should status differences be induced in experimental studies? How does status affect individual behaviour and preferences in different experimental games?
RQ3: Through which channels can a mentoring programme affect the personal development of low status children?
Organisations
| Description | Throughout my PhD, I explored different aspects of inequality and their interaction with social preferences through the lense of behavioural economics. At this point in time, I conducted and completed two experimental studies and have developped the design for a third one that I want to take into the field this spring/ summer. In my first chapter, I examine the role of inequality on social stability. I approach this question through a laboratory experiment that allows to isolate the concepts of inequality and stability, stripping away confounding factors. The main focus of the study is thereby on how past experiences of more or less equal interactions affect current attitudes towards inequality and how coordination among groups is affected by changing inequality. I explore these questions through various treatments that differ with respect to the underlying inequality dynamics. The results confirm that increasing inequality can in fact be a destabilising factor, with the group being disadvantaged by the current status quo initialising the breakdown of coordination between groups. In the second study, I explore how fairness views and preferences for redistribution are affected by negative income shocks. I study this question through two different approaches. Firstly, by generating negative income shocks within an experiment and measuring how the latter affect an individual's willingness to redistribute earnings between themselves and another participant. Secondly, I utilise naturally occuring income shocks caused by the recent Covid-19 crisis inviting people who did/ did not lose their employment due to Covid-19 to participate in my study. I find that people do react to both own as well as information about others' shocks. This is true for both the within experiment shocks as well as the real world shocks. In particular, while suffering a negative income shock makes people less willing to redistribute earnings, learning about another person's shock leads to more generous behaviour and higher levels of redistribution. In addition, I find that relative income differences between participants moderate both the reaction to shocks as well as the fairness rule individuals adhere to when taking redistributive decisions. Relatively richer participants are thereby more likely to follow libertarian values and react to income shocks, while relatively poorer particiapnts are more likely to adhere to egalitarian fairness ideals and be irresponsive to shocks. In my third chapter, finally, I investigate how the variance of social normas affect individual behaviour. Previous research has shown that individuals respond a lot to information about what others are doing. However, so far people have mainly focused on the average behaviour in a population. In this chapter, I extend this approach by showing that the variance and shape of the distribution matters as well. In particular, if people are confronted with a more disperse distribution of behaviour (a loose norms), there responses are also much more varied as compared to a lower variance (tight norm). If there is more variation, people are instead guided more by their own personal values, i.e. what they feel is the right thing to do in a given situation. Finally, I also show that if behaviour follows a polarised distribution, responses to normative information are also polarised. |
| Exploitation Route | The results of my first two chapters provide important insights about inequality and redistributive preferences. The finding of the first chapter that inequality has a destabilising effect on coordination between groups, provides an important argument for avoiding an increase in social inequality. The second chapter, by contrast, contributes to a growing literature on context-dependent preference formation and shows that economic shocks can have substantial effects for the demand and acceptance of redistributive policies. The third chapter, finally shows that when working with norms, the variance as well as the average behaviour matters. This is important for policy makers or organisations who want to use norm interventions or nudges to achieve certain behavioural goals. |
| Sectors | Government, Democracy and Justice,Other |
| URL | https://www.econstor.eu/bitstream/10419/268031/1/ECONtribute_198_2022.pdf |