Are social preferences reference dependent? a study of reference dependent social preferences among students at the Norwegian School of Economics
Year: 2013
Type: dissertation
Abstract: This thesis explores whether social preferences are reference dependent. More specifically it\nexamines whether reference points, defined by expectations, regarding income inequality\naffect our willingness to redistribute income (pro-social behavior). The theoretical\nbackground for this thesis is two important insights from behavioral economics. The first\ninsight comes from the theory of loss aversion – that people evaluate outcomes relative to a\nreference point shaped by their expectations. The second insight comes from the theory of\nsocial preferences – that people not only care about their own welfare (income), but also\nabout other people’s welfare, and hence fairness and equality. Combined, these two insights\nsuggest that people’s expectations regarding income inequality, as well as deviations from\nthese expectations, influence how they evaluate their own utility – in addition to own income\nand deviations from own expected income.\nThis thesis reports the results from an economic experiment designed to study the role of\nexpectations in explaining redistributive behavior. The analysis is based on data from three\nseparate lab-experiments conducted on the student body at The Norwegian School of\nEconomics in the spring and early fall of 2012. Designed as a dictator game, the students\nwere tested on how their willingness to redistribute income was affected by the\nimplementation of different reference points through the use of treatments altering their\nexpectations.\nThe main finding of this thesis is that when people expect inequality they give away almost\n30 percent less than when they expect equality, ceteris paribus. This is a huge effect, and\ndemonstrates the importance of reference dependence in explaining pro-social behavior. The\nresult may also be important in explaining why e.g. Americans redistribute a smaller share of\ntheir income than do taxpayers in Scandinavian countries, and to an extent why many\nwelfare states differ to the degree which they do.
Author: Kristina Øystese
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2494171903