The Hindu Business Line : <I>Inequality aversion </I>

The other day, we were witness to some intriguing child behaviour. A table was laid out for ten children with some chips among other eats. Unfortunately, the chips were not enough for all. The last two in the queue were given French fries instead. Three other children who saw this just refused to have their chips! They were apparently upset that the two children got French fries instead of chips. Such behaviour is not uncommon. It stems from inequality aversion. What is it?

Inequality aversion simply refers to our fondness for fair play. Ernest Fehr, an Austrian economist, along with others has conducted studies in this area as part of his research on neuro-economics.

Suppose you are due for a raise in your job along with a co-worker. You find that she undeservedly got a higher raise. How would you feel? Your first emotion may be that of envy because of your inability to accept inequality. This form of behaviour is referred to as disadvantageous inequality aversion. At the extreme, you may choose to give up your raise, protesting against the undeserved increase in your co-worker's salary. Just like the three children mentioned above.

But what of the co-worker who actually receives a higher salary? If she believes that she undeservedly received a hike, she may actually feel guilty about it! That is referred to as advantageous inequality aversion.

It is inequality aversion that prompts us to conduct all our economic transactions with mutual respect and fair play. Imagine the kind of free-riding people would enjoy if there were no inequality aversion.

(The author is based in Toronto, Canada)

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