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IA

Inequity aversion (IA) is the preference for fairness and resistance to incidental inequalities.

This apparently self-destructive response is essential in creating an environment in which bilateral bargaining can thrive. Without inequity aversion’s rejection of injustice, stable cooperation would be harder to maintain (for instance, there would be more opportunities for successful free riders).

Inequity aversion is broadly consistent with observations of behavior in three standard economics experiments:

  1. Dictator game – The subject chooses how a reward should be split between himself and another subject. If the dictator acted self-interestedly, the split would consist of 0 for the partner and the full amount for the dictator. While the most common choice is indeed to keep everything, many dictators choose to give, with the second most common choice being the 50:50 split.
  2. Ultimatum game – The dictator game is played, but the recipient is allowed to veto the entire deal, so that both subjects receive nothing. The partner typically vetos the deal when low offers are made. People consistently prefer getting nothing to receiving a small share of the pie. Rejecting the offer is in effect paying to punish the dictator (called the proposer).
  3. Trust game – The same result as found in the dictator game shows up when the dictator’s initial endowment is provided by his 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.