RISK, INEQUALITY AVERSION AND BIASES BORN OF SOCIAL POSITION: FURTHER EXPERIMENTAL TESTS OF THE LEAKY BUCKET

Abstract

The leaky bucket and the transfer principle are tested under conditions of individual uncertainty, behind a veil of ignorance and when positions are known. We find that choices under individual uncertainty are slightly more risk seeking than behind a veil of ignorance indicating that the conventional practice of modeling inequality aversion as risk aversion does not lead to serious error. However, our subjects can not be said to be risk seeking or risk averse but rather protect against downside risks and seek upside gain. As in previous experiments, we find that choices with positions known are quite insensitive to inefficiency and exhibit considerable antipathy to returns that accrue to others, whether richer or poorer. Richer American males are least likely to support leaky-bucket transfers that reduce inequality once positions are known. Lottery players, but not smokers show greater risk preference given individual uncertainty.

Citation

Beckman, S.R., Formby, J.P., Smith, W.J. and Zheng, B. (2004), "RISK, INEQUALITY AVERSION AND BIASES BORN OF SOCIAL POSITION: FURTHER EXPERIMENTAL TESTS OF THE LEAKY BUCKET", Bishop, J.A. and Amiel, Y. (Ed.) Studies on Economic Well-Being: Essays in the Honor of John P. Formby (Research on Economic Inequality, Vol. 12), Emerald Group Publishing Limited, Leeds, pp. 73-96. https://doi.org/10.1016/S1049-2585(04)12003-6