Estimating Social Preferences Using Stated Satisfaction: Novel Support for Inequity Aversion
John Ifcher, Department Chair and Associate Professor of Economics
Lina Diaz, Daniel Houser, John Ifcher, Homa Zarghamee, Estimating social preferences using stated satisfaction: Novel support for inequity aversion, European Economic Review, Volume 155, 2023, 104436, ISSN 0014-2921, https://doi.org/10.1016/j.euroecorev.2023.104436.
Experimental identification of social preferences often uses a revealed-preference approach, whereby participants make choices over payment distributions for themselves and others. We introduce an alternative “stated satisfaction” approach: participants directly report their satisfaction with various payment-profiles that hold their own payment constant while varying another participant's payment. We then use our data to estimate the unrestricted parameters of the Fehr and Schmidt (1999) model to determine participants’ social preferences. While the Fehr and Schmidt parameter-assumptions make it a model of inequity aversion, alternate parameter-assumptions can reflect different social preferences. Our methodology yields support for the Fehr and Schmidt assumptions (i.e., that both disadvantageous and advantageous inequity are utility-diminishing, the former more so than the latter) at both the aggregate and individual levels. Methodologically, eliciting satisfaction can be an easy-to-implement complement to choice-based preference-measures in contexts other than social preferences that are of interest to economists.