Trading off between equity and efficiency in dictator and trust games

Abstract

We investigate how people trade off between equity and efficiency, using variations of tripled dictator and trust games in a lab experiment. Equalizing payoffs reduces the return from the tripled investment in the dictator game. In contrast, in the trust game both equal and maximized payoffs can be achieved, provided that receiver transfers back half of the return from investment. We find that subjects sacrifice efficiency for equity in the dictator game but manage to achieve both in the trust game. Most subjects equalize payoffs when they are placed behind a veil of ignorance about their position in the trust game, regardless of their aversion to risk. They invest less when they pay to obtain their position as investor but do not send back less if they pay to be the receiver. Subjects who modify their investment decision after receiving information about the average investment in their group tend to move closer to the average.

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Replaced by

Stefan Ambec, Alexis Garapin, Laurent Muller, and Bilel Rahali, “How institutions shape individual motives for efficiency and equity: Evidence from distribution experiments”, Journal of Behavioral and Experimental Economics, vol. 81, August 2019, pp. 128–138.

Reference

Stefan Ambec, Alexis Garapin, Laurent Muller, and Bilel Rahali, “Trading off between equity and efficiency in dictator and trust games”, TSE Working Paper, n. 16-718, October 2016.