Friday, January 25, 2008

Equality and Fairness

I ran across a very interesting question the other day.

If all goods and services remained the same price, which would you prefer?
A. To make $50,000/yr while everyone makes $25,000/yr
B. To make $100,000/yr while everyone makes $250,000/yr

I would daresay that the majority of respondents chose option A.

Let us modify the options--
If all goods and services remained the same price, which would you prefer?
A. To make $50,000/yr while everyone makes $25,000/yr
B. To make $100,000/yr while everyone makes $100,000/yr

And make yet another change to the question--
If all goods and services remained the same price, which would you prefer?
A. To make $50,000/yr while everyone makes $50,000/yr
B. To make $100,000/yr while everyone makes $150,000/yr

A slight majority of respondents chose option B in both scenarios. Most of the remainder chose option B then option A. Are these surprising results? Perhaps. The purpose of these questions was to find the boundary between the respondent's preconception of relative wealth and absolute wealth.

In the first scenario, why option A? It would seem that if everything costs the same in both scenarios, you would be able to have twice as much with option B. That's twice as many dinners out, twice as many Caribbean vacations, and twice as many savings. It can only mean that the amount everyone else earns makes a difference. Everyone else would be able to have two and a half times of everything more than you. That is what what option B so unpalatable to most people.

In the second scenario, why option B? Going by the same logic, it would make sense because you would double your potential. At the same time, everyone else is on the same ground, and most people will accept the equality. Between the first two scenarios, you can see why socialism works in certain civilizations.

In the third scenario, the respondents were more evenly split. With option A, everything is even, and you do not have the inequality in option B. With option B, you have more potential, but that potential is not so severely disproportionate to everyone else as to make it so unpalatable. You would suspect that by gradually reducing the difference in income in option B, that more and more people would chose option B over A. I would believe it, but have not done an informal survey to show it.

So there seems to be a difference with regards to self perception and equality. Everyone has an amount with which they would be happy. Whether it's $25,000, $50,000, $100,000, or whatever, there is an absolute number that people believe they deserve. This number is not necessarily what people want, but what they are willing to accept as a fair estimation of the worth of their work. This number is also affected by current market prices. Market prices correlate with the overall averages of the worth of goods and services. Unfortunately, we tend to believe that the average, or mean, worth of goods and services is the same as the median and mode (mean=mathematical average, median=middlemost number, mode=number most common). We want to believe that the average person really is average is all respects.

This is not the way the world works, though. Inequities are everywhere. The most obvious example is the disparity in income between men and women in the same profession. And that these inequities exist today tells us that there are people who are getting something for nothing. And people want the same options as everyone else. Everyone has the same opportunity to play the lottery and strike it rich. Everyone has the same opportunity to buy stocks and save for the future. But not everyone has the opportunity to be grossly overpaid for doing little to nothing. This is the problem for everyone who chooses option A in the first question. If there is to be inequality, they want to be on the greener grass. In fact, a large number of people would gladly sacrifice some of their benefits to ensure that others do not gain undeserved benefits.

A study performed by Gurerk, Irlenbusch, and Rockenbach (Science 2006) participants were given twenty tokens and then allowed to join one of two groups. In both groups the members would earn a profit based on the number of tokens in the pot at the end of a round. Each member could chose how many tokens to add to the pot. In the first group, a freeloader could still earn profit without contributing tokens, as long as one other member in the group contributed to the pot. In the second group, the option to penalize another member three tokens for the cost of one token was given to every member. As predicted, nearly all participants joined the second group after twenty rounds, and freeloaders in the second group earned less then other members. Also, members who opted not to punish ended up with slightly more tokens than members who opted to punish freeloaders. This suggests that some people are clearly willing to sacrifice self benefit if it means more equality, and that perhaps those who did not punish had either a higher threshold for inequality or anticipated others to punish the freeloaders.

This ingrained aversion to inequity is not unique to humans. Brosnan and de Waal (Nature 2003) conducted an experiment with female brown capuchin monkeys where the subjects exchanged tokens for cucumber. Then the monkeys witnessed partner monkeys either receiving a grape (a better treat than cucumber) for a token or for nothing at all. All the while the subjects continued to receive only cucumber for their token. Upon witnessing the partner exchanges with grapes, the subjects began not only to refuse to relinquish their tokens, but also refused to eat the cucumber. This even happened with subjects who had been bartering tokens for cucumbers for two years time and had accepted the value of the cucumber. The authors concluded that the monkeys responded not to the lack of positive reinforcement, since cucumbers were accepted for two years in bartering, but to the observed inequity to both reward value and reward for degree of effort.

While I asked quite a number of people these questions, I did get a tremendous number of comments about how the questions are flawed because the scenario in unreal, could never exist in real life, does not account for how hard you work, blah, blah, blah. This, of course, shows how closely our happiness is tied to equality, our comparison to other people. People would consider working three days a week better than five, and if they made less than the Joneses but worked less, they might consider it fair. Or if they got to use the company car or had better insurance it would make up for less pay. It is this dislike of not having other compensation to make up for a relative disparity in pay that demonstrates our need for comparison. But you cannot phrase a hypothetical question designed to elicit people's need to compare themselves to others with five hundred stipulations of nonmonetary compensation.