A pinch of opportunity makes deep inequality more palatableJuly 27, 2012
A study by Eugenio Proto, an economist from the Centre for Competitive Advantage in the Global Economy (CAGE) at the University of Warwick and two other co-authors, looked at decision-making and how it was influenced by people's perceptions of fairness.
Researchers set up a game between two people where one person (the proposer) offers to split £10 between themselves and their partner, with the proposer able to decide the exact amount he or she is willing to offer.
If that amount is not accepted by to the second person (the responder) then neither gets any money.
Known as an ultimatum game, this kind of set-up is frequently studied by economists - but for the first time the CAGE experiment introduced an element of inequality via an increasingly-biased rigged lottery to decide who becomes the proposer, the stronger of the two positions.
It makes sense that when people see clear-cut unfairness, they are less likely to accept it - and this was shown in the results.
When the opportunity to become the proposer was 50 per cent - i.e completely fair - responders on average rejected an offer by the proposer of £2.15 or less.
And when the chance of becoming the proposer was rigged at 0 per cent - i.e complete inequality - responders rejected offers of £2.96 or less.
But when just a one per cent chance of becoming a proposer was introduced - i.e the lottery was still vastly rigged biased in the proposer's favour - responders rejected offers of £2.53 or less.
In other words the difference between having absolutely no chance and having just a one per cent chance was valued at 43p (£2.96 - £2.53) - proportionally much larger than the 38p value (£2.53 - £2.15) given to the gap between 1 and 50 per cent.
Dr Eugenio Proto, Associate Professor of Economics at the University of Warwick, said he was surprised to discover this quirk in human decision-making.
"When you look at it rationally, it makes no sense that people are placing such a disproportionate value on that first one per cent increase in opportunity.
"But that slight increase in fairness seems to have some kind of symbolic meaning.
"It appears people are happy to accept extreme inequality when they have this tiny carrot dangled in front of them.
"We've got to remember that our experiments are conducted in a lab at a university, not in the real world which is far more complex.
"But these results could shed light on why people living in unequal societies aren't more vocal in rejecting unfairness.
"It seems that even if people believe they have just the tiniest of chances to become the next Bill Gates, it's enough to keep them tolerant of obvious inequality."
Anirban Kar of the Delhi School of Economics, one of the other two co-authors, added: "It makes sense that when people see clear-cut unfairness in the system, they are more likely to reject an unequal outcome than if the same outcome was generated by a fair system.
"Participation in the system, surprisingly enough, even a symbolic one (a modicum of voice) seems to have a significant impact".
The research paper Everyone Wants a Chance: Initial Positions and Fairness in Ultimatum Games was co-authored with Gianluca Grimalda of Universitat Jaume I, Castelló in Spain and Anirban Kar of the Delhi School of Economics, University of Delhi.
University of Warwick
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