Skip to main content

Choosing inequality: how economic security fosters competitive regimes

This article has been updated

Abstract

In a novel experimental design, we study how social immobility affects the choice among distributional schemes in an experimental democracy. We design a two-period experiment in which subjects first choose a distributional scheme by majority voting (“social contract”). Then subjects engage in a competitive real-effort task to earn points. Based on production success, participants are ranked from best to worst. In combination with the initially chosen scheme, these ranks determine the final payout of the first round, leading to a pattern of societal stratification. Participants are informed individually about points and rank, before the same sequence of voting, production and payoff determination is repeated in a second round. To test the effect of social immobility on choosing distributional regimes the experiment is conducted with and without a social immobility factor, i.e. a different weighting of the two rounds. In our standard scenario, payoffs are simply added. In our “social immobility setting”, we alter the game as follows: the actual income in round 2 is calculated by adding 0.2 times the raw payoff from the second production game and 0.8 times the income from round 1. With the higher importance of round 1 success, we simulate the fact that economic movement upwards and downwards in societies (“social mobility”) is a de facto rigid constraint: high and low incomes tend to reproduce themselves. Our main findings are that in the Equal Weight Treatment, most groups opt for complete equality in both rounds, while in the unequal weight setting the initial choice of equality is followed by a shift to the most competitive regime. In both treatments, we observe that those performing well in round 1 tend to vote for unequal schemes in round 2, while low-performers develop an even stronger “taste for equality”. This supports a central Rawlsian idea: behind an (experimental) “veil of uncertainty”, the lack of idiosyncratic information is strong enough to let people decide as if driven by social preferences. The different group decisions in round 2 suggest that for this to happen, stakes need to be sufficiently high. To our surprise, other factors like gender, social background or real-life income have hardly any impact on unveiled decision making. We conclude that in our experimental democracy, competition based income allocation (a “market economy”) finds support only if people are sufficiently well off. Hence, increasing inequality perpetuated by social immobility is likely to undermine the general support for market-based systems.

Change history

  • 24 February 2021

    Springer Nature's version of this paper was updated to present the correct the funding statement.

References

  • Alesina, A., Fuchs-Schündeln, N.: Good-bye Lenin (or not?): the effect of communism on people’s preferences. Am. Econ. Rev. 97(4), 1507–1528 (2007)

    Google Scholar 

  • Alesina, A., Glaeser, E.L.: Fighting Poverty in the US and Europe. Oxford University Press, Oxford, A World of Difference (2004)

    Google Scholar 

  • Alesina, A., Rodrik, D.: Distributive politics and economic growth. Q. J. Econ. 109(2), 465–490 (1994)

    Google Scholar 

  • Arrow, K.J.: Aspects of the Theory of Risk Bearing. Academic Bookstores, Helsinki (1965)

    Google Scholar 

  • Atkinson, A. B., Bourguignon, F.: Handbook of Income Distribution. Elsevier, Amsterdam (2000)

  • Binmore, K.: Game Theory and the Social Contract. Volume 1: Playing Fair. MIT Press, Cambridge (1994)

    Google Scholar 

  • Binmore, K.: Game Theory and the Social Contract. Volume 2: Just Playing. MIT Press, Cambridge (1998)

    Google Scholar 

  • Binmore, K.: Natural Justice. Oxford University Press, New York (2005)

    Google Scholar 

  • Binmore, K., Shaked, A.: Experimental economics: where next? J. Econ. Behav. Organ. 73(1), 87–100 (2010)

    Google Scholar 

  • Blackburn, R.M., Prandy, K.: The reproduction of social inequality. Sociology. 31(3), 491–509 (1997)

    Google Scholar 

  • Blinder, A.S., Choi, D.H.: A shred of evidence on theories of wage stickiness. Q. J. Econ. 105(4), 1003–1016 (1990)

    Google Scholar 

  • Bolton, G., Ockenfels, A.: ERC: a theory of equity, reciprocity and competition. Am. Econ. Rev. 90(1), 166–193 (2000)

    Google Scholar 

  • Boudon, R.: Education, Opportunity, and Social Inequality. Changing Prospects in Western Society. Wiley, New York (1974)

    Google Scholar 

  • Buchanan, J.M.: The Limits of Liberty. Between Anarchy and Leviathan. University of Chicago Press, Chicago (1975)

    Google Scholar 

  • Buchanan, J.M., Brennan, J.: The Reason of Rules: Constitutional Political Economy. Cambridge University Press, Cambridge (1985)

    Google Scholar 

  • Buchanan, A., Mathieu, D.: Philosophy and justice. In: Cohan, R.L. (ed.) Justice. Views from the Social Sciences, pp. 11–45. Plenum Press, New York (1986)

    Google Scholar 

  • Bundesministerium für Finanzen: Einkommensungleichheit und soziale Mobilität. Gutachten des Wissenschaftlichen Beirats beim Bundesministerium der Finanzen. Berlin (2017)

  • Butler, T., Watt, P.: Understanding Social Inequality. Sage Publications, London (2007)

    Google Scholar 

  • Camerer, C.F.: Behavioral Game Theory. Experiments in Strategic Interaction. Princeton University Press, Princeton (2003)

    Google Scholar 

  • Cappelen, A.W., Konow, J., Sørensen, E.Ø., Tungodden, B.: Just luck: an experimental study of risk-taking and fairness. Am. Econ. Rev. 103(4), 1398–1413 (2013)

    Google Scholar 

  • Card, D., Mas, A., Moretti, E., Saez, E.: Inequality at work: the effect of peer salaries on job satisfaction. Am. Econ. Rev. 102(6), 2981–3003 (2012)

    Google Scholar 

  • Cardenas, J.C., Rodriguez, L.A., Johnson, N.: Collective action for watershed management: field experiments in Colombia and Kenya. Environ. Dev. Econ. 16(3), 275–303 (2011)

    Google Scholar 

  • Charness, G., Rabin, M.: Understanding social preferences with simple tests. Q. J. Econ. 117(3), 817–869 (2002)

    Google Scholar 

  • Cohn, A., Fehr, E., Götte, L.: Fair wages and effort provision: combining evidence from a choice experiment and a field experiment. Manag. Sci. 61(8), 1777–1794 (2014)

    Google Scholar 

  • Davis, K., Moore, W.E.: Some principles of stratification. Am. Sociol. Rev. 10(2), 242–249 (1945)

    Google Scholar 

  • Deutsch, M.: Distributive justice: a social-psychological perspective. Yale University Press, New Haven (1985)

  • Dupriez, V., Monseur, C., van Campenhoudt, M., Lafontaine, D.: Social inequalities of post-secondary educational aspirations: influence of social background, school composition and institutional context. Eur. Educ. Res. J. 11(4), 504–519 (2012). https://doi.org/10.2304/eerj.2012.11.4.504

    Article  Google Scholar 

  • Ehmke, T., Siegle, T.: ISEI, ISCED, HOMEPOS, ESCS—Indicators of social background for quantifying social disparity. Z. Erziehungswiss. 8(4), 521–539 (2005). https://doi.org/10.1007/s11618-005-0157-7

    Article  Google Scholar 

  • Ellingsen, T., Johannesson, M., Mollerstrom, J., Munkhammar, S.: Social framing effects: preferences or beliefs? Games Econ. Behav. 76(1), 117–130 (2012)

    Google Scholar 

  • Fehr, E., Fischbacher, U.: Why social preferences matter. The impact of non-selfish motives on competition, cooperation and incentives. Econ. J. 112(478), C1–C33 (2002)

    Google Scholar 

  • Fehr, E., Gintis, H.: Human motivation and social cooperation: experimental and analytical foundations. Annu. Rev. Sociol. 33, 43–64 (2007)

    Google Scholar 

  • Fehr, E., Schmidt, K.M.: A theory of fairness, competition and cooperation. Q. J. Econ. 114(3), 817–868 (1999)

    Google Scholar 

  • Fischbacher, U., Gächter, S.: Social preferences, beliefs, and the dynamics of free riding in public good experiments. Am. Econ. Rev. 100(1), 541–556 (2010)

    Google Scholar 

  • Frank, R.H., Cook, P.J.: The Winner-Take-All Society. Why the Few at the Top Get So Much More Than the Rest of Us. Penguin Books, New York (1996)

    Google Scholar 

  • Frohlich, N., Oppenheimer, J.A.: Choosing justice in experimental democracies with production. Am. Polit. Sci. Rev. 84(2), 461–477 (1990)

    Google Scholar 

  • Frohlich, N., Oppenheimer, J.A.: Choosing Justice. An Experimental Approach to Ethical Theory. University of California Press, Berkeley (1992)

    Google Scholar 

  • Gächter, S., Nosenzo, D., Sefton, M.: Peer effects in pro-social behavior: social norms or social preferences? J. Eur. Econ. Assoc. 11(3), 548–573 (2013)

    Google Scholar 

  • Gächter, S., Mengel, F., Tsakas, E., Vostroknutov, A.: Growth and inequality in public good provision. J. Public Econ. 150(1), 1–13 (2017)

    Google Scholar 

  • Gerber, A., Neitzel, J., Wichardt, P.C.: Minimum participation rules for the provision of public goods. Eur. Econ. Rev. 64, 209–222 (2013)

    Google Scholar 

  • Giesecke, J., Heisig, J.P., Solga, H.: Getting more unequal: rising labor market inequalities among low-skilled men in West Germany. Res. Soc. Stratif. Mobil. 39, 1–17 (2015)

    Google Scholar 

  • Güth, W., Kocher, M.G.: More than thirty years of ultimatum bargaining experiments: motives, variations, and a survey of the recent literature. J. Econ. Behav. Organ. 108, 396–409 (2014)

    Google Scholar 

  • Güth, W., Schmittberger, R., Schwarze, B.: An experimental analysis of ultimatum bargaining. J. Econ. Behav. Organ. 3(4), 367–388 (1982)

    Google Scholar 

  • Güth, W., Kliemt, H., Ockenfels, A.: Fairness versus efficiency. An experimental study of (Mutual) gift giving. J. Econ. Behav. Organ. 50(4), 465–475 (2003)

    Google Scholar 

  • Hacker, J.S., Pierson, P.: Winner-Take-All Politics. How Washington Made the Rich Richer – And Turned Its Back on the Middle Class. Simon & Schuster, New York (2010)

    Google Scholar 

  • Harsanyi, J.: Can the Maximin principle serve as a basis for morality? A Critique of John Rawls’s Theory. Am. Polit. Sci. Rev. 69(2), 594–606 (1975)

    Google Scholar 

  • Henrich, J.: Does culture matter in economic behavior? Ultimatum Game Bargaining among the Machiguenga of the Peruvian Amazon. Am. Econ. Rev. 90(4), 973–979 (2000)

    Google Scholar 

  • Henrich, J., et al.: ‘Economic Man’ in cross-cultural perspective: behavioral experiments in 15 small-scale societies. Behav. Brain Sci. 28(6), 1–61 (2005)

    Google Scholar 

  • Holt, C.A., Laury, S.K.: Risk aversion and incentive effects. Am. Econ. Rev. 92(5), 1644–1655 (2002)

    Google Scholar 

  • Johnson, D.T.: Poverty, Inequality and Social Welfare in Australia. Physica-Verlag, Heidelberg (1996)

    Google Scholar 

  • Kahneman, D., Tversky, A.: Prospect theory. An analysis of decisions under risk. Econometrica. 47(2), 263–291 (1979)

    Google Scholar 

  • Kahneman, D., Knetsch, J.L., Thaler, R.: Fairness as a constraint on profit seeking: entitlements in the market. Am. Econ. Rev. 76(4), 728–741 (1986)

    Google Scholar 

  • Kant, I.: Grundlegung zur Metaphysik der Sitten. Reclam, Stuttgart (2008 [1785])

    Google Scholar 

  • Kiatpongsan, S., Norton, M.I.: How much (more) should CEOs make? A universal desire for more equal pay. Perspect. Psychol. Sci. 9(6), 587–593 (2014)

    Google Scholar 

  • Kittel, B., Paetzel, F., Traub, S.: Competition, income distribution and the middle class: an experimental study. J. Appl. Math. 2015, 1–15 (2015)

    Google Scholar 

  • Kolm, S.-C.: Modern Theories of Justice. MIT Press, Cambridge (1996)

    Google Scholar 

  • Konow, J.: Accountability and cognitive dissonance in allocation decisions. Am. Econ. Rev. 90(4), 1072–1091 (2000)

    Google Scholar 

  • Konow, J.: Which is the fairest one of all? A positive analysis of justice theories. J. Econ. Lit. 41(4), 1188–1239 (2003)

    Google Scholar 

  • Kroll, Y., Davidovitz, L.: Inequality aversion versus risk Averison. Economica. 70(277), 19–29 (2003)

    Google Scholar 

  • Lenger, A., Schneickert, C., Schumacher, F.: Pierre Bourdieus Konzeption des Habitus. In: Alexander Lenger, Christian Schneickert und Florian Schumacher (Hg.): Pierre Bourdieus Konzeption des Habitus. Grundlagen, Zugänge, Forschungsperspektiven: Springer VS, S. 13–41 (2013)

  • Lenger, A., Schumacher, F.: Understanding the Dynamics of Global Inequality. Social Exclusion, Power Shift, and Structural Changes. Springer, Heidelberg (2015)

    Google Scholar 

  • Lynn, R., Vanhanen, T.: IQ and Global Inequality. Washington Summit Publishers, Augusta (2006)

    Google Scholar 

  • Marger, M.: Social Inequality. Patterns and Processes. McGraw-Hill, Boston (2005)

    Google Scholar 

  • Milanovic, B.: Worlds apart. Measuring International and Global Inequality. Princeton University Press, Princeton (2005)

    Google Scholar 

  • Mollerstrom, J., Reme, B.-A., Sørensen, E.Ø.: Luck, choice and responsibility–an experimental study of fairness views. J. Public Econ. 131, 33–40 (2015)

    Google Scholar 

  • Müller, C.: The methodology of Contractarianism in economics. Public Choice. 113(3/4), 465–483 (2002)

    Google Scholar 

  • Neckerman, K.M. (ed.): Social Inequality. Sage Publications, New York (2004)

    Google Scholar 

  • Norton, M.I.: Unequality: who gets what and why it matters. Policy Insights Behav. Brain Sci. 1(1), 151–154 (2014)

    Google Scholar 

  • Norton, M.I., Ariely, D.: Building a better America – one wealth quintile at a time. Perspect. Psychol. Sci. 6(1), 9–12 (2011)

    Google Scholar 

  • Norton, M.I., Neal, D.T., Govan, C.L., Ariely, D., Holland, E.: The not-so-common-wealth of Australia: evidence for a cross-cultural desire for a more equal distribution of wealth. Anal. Soc. Issues Public Policy. 14(1), 339–351 (2014)

    Google Scholar 

  • Nussbaum, M.C.: Frontiers of Justice. Disability, Nationality, Species Membership. The Belknap Press, Cambridge (2006)

    Google Scholar 

  • OECD: Growing Unequal? Income Distribution and Poverty in OECD Countries. OECD Publishing, Paris (2008)

    Google Scholar 

  • OECD: Divided we Stand. Why Inequality Keeps Rising. OECD Publishing, Paris (2011)

    Google Scholar 

  • OECD: In It Together: Why Less Inequality Benefits All. OECD Publishing, Paris (2015)

    Google Scholar 

  • Okun, A.: Equality and Efficiency: the Big Tradeoff. Brookings, Washington D.C (1975)

    Google Scholar 

  • Oosterbeek, H., Sloof, R., Van den Kuilen, G.: Cultural differences in ultimatum game experiments: evidence from a meta-analysis. Exp. Econ. 7(2), 171–188 (2004)

    Google Scholar 

  • Osberg, L., Smeeding, T.: ‘Fair’-inequality? attitudes towards pay differentials: the United States in comparative perspective. Am. Sociol. Rev. 71(3), 450–473 (2006)

    Google Scholar 

  • Osborn, A.F., Morris, T.C.: The rationale for a composite index of social class and its evaluation. Br. J. Sociol. 30(1), S. 39 (1979). https://doi.org/10.2307/589500

    Article  Google Scholar 

  • Piketty, T.: Capital in the Twenty-First Century. Harvard University Press, Harvard (2014)

    Google Scholar 

  • Piketty, T., Saez, E.: Income inequality in the United States, 1913-1998. Q. J. Econ. 118(1), 1–39 (2003)

    Google Scholar 

  • Rabin, M.: Risk aversion and expected-utility theory: a calibration theorem. Econometrica. 68(5), 1281–1292 (2000)

    Google Scholar 

  • Rawls, J.: A Theory of Justice. Harvard University Press, Cambridge (1971)

    Google Scholar 

  • Rousseau, J.-J.: Vom Gesellschaftsvertrag. Reclam, Stuttgart (2003 [1762])

    Google Scholar 

  • Saad, G., Gill, T.: Sex differences in the ultimatum game: an evolutionary psychological perspective. J. Bioecon. 3(2), 171–193 (2001)

    Google Scholar 

  • Sen, A.K.: Development as Freedom. Oxford University Press, New Delhi Oxford (1999)

    Google Scholar 

  • Sen, A.K.: The Idea of Justice. Allen Lane, London (2010)

    Google Scholar 

  • Shavit, Y., Blossfeld, H.-P.: Persistent Inequality. Changing Educational Attainment in Thirteen Countries. Westview Press, Boulder (1993)

    Google Scholar 

  • Shayo, M.: A model of social identity with an application to political economy: nation, class, and redistribution. Am. Polit. Sci. Rev. 103(2), 147–174 (2009)

    Google Scholar 

  • Shipler, D. K. The Working Poor. Invisible in America. Vintage Books, New York (2005)

  • Smith, A.: The theory of moral sentiments. Empire Books (2011 [1759])

  • Solnick, S.J.: Gender differences in the ultimatum game. Econ. Inq. 39(2), 189–200 (2001)

    Google Scholar 

  • Solon, G.: What Do We Know So Far about Multigenerational Mobility? National Bureau of Economic Research Working Paper 21053. Available at http://www.nber.org/papers/w21053. Last accessed 2 Jun 2017 (2015)

  • Solt, F.: Economic inequality and democratic political engagement. Am. J. Polit. Sci. 52(1), 48–60 (2008)

    Google Scholar 

  • Starmans, C., Sheskin, M., Bloom, P.: Why people prefer unequal societies. Nat. Hum. Behav. 1(0082), (2017)

  • Stiglitz, J.E.: The Price of Inequality. How Today’s Divided Society Endangers our Future. W.W. Norton & Co, New York (2012)

    Google Scholar 

  • Traub, S., Seidl, C., Schmidt, U.: An experimental study on individual choice, social welfare, and social preferences. Eur. Econ. Rev. 53(4), 385–400 (2009)

    Google Scholar 

  • Wilkinson, R.G., Pickett, K.: The Spirit Level. Why More Equal Societies Almost Always Do Better. Allen Lane, London (2009)

    Google Scholar 

  • Wolf, S., Lenger, A.: Utilitarianism, the difference principle, or else? An experimental analysis of the impact of social immobility on the democratic election of distributive rules. In: Lütge, C., Rusch, H., Uhl, M. (eds.) Experimental Ethics. Toward an Empirical Moral Philosophy, pp. 94–111. Palgrave Macmillan, Houndmills (2014)

    Google Scholar 

  • Wolff, E.N.: Top Heavy. Increasing Inequality of Wealth in America and What Can Be Done About It. New Press, New York (2002)

    Google Scholar 

  • Wyss, R.: The Tolerance Premium as a Constitutional Element of the Protective and Welfare State. Constitutional Economics Network Working Papers 01–2011 (2011)

  • Zagorsky, J.L.: Do you have to be smart to be rich? The impact of IQ on wealth, income and financial distress. Intelligence. 35(5), 489–501 (2007)

    Google Scholar 

Download references

Funding

Open Access funding enabled and organized by Projekt DEAL.

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Stephan Wolf.

Additional information

Publisher’s Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Electronic supplementary material

ESM 1

(DOCX 211 kb)

Rights and permissions

Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Lenger, A., Wolf, S. & Goldschmidt, N. Choosing inequality: how economic security fosters competitive regimes. J Econ Inequal 19, 315–346 (2021). https://doi.org/10.1007/s10888-020-09472-5

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10888-020-09472-5

Keywords

  • Decision making
  • Experiment
  • Inequality
  • Information
  • Justice
  • Social choice
  • Social contract
  • Social immobility
  • Stratification

Jel classification

  • C91
  • C92
  • D31
  • D63
  • D71
  • D81
  • D90