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Department of Economics, Norwegian School of Economics (NHH) Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)

No 4/2010:
Just Luck: An Experimental Study of Risk Taking and Fairness.

Alexander W. Cappelen (), James Konow (), Erik Ø. Sørensen () and Bertil Tungodden ()

Abstract: Choices involving risk significantly a ect the distribution of income and wealth in society, but there is probably no more contentious question of justice than how to allocate the gains and losses that inevitably result from risky choices. This paper reports the results from the first experiment, to our knowledge, to study fairness views about risk-taking, where the main aim is to examine whether people's fairness considerations mainly focus on ex ante opportunities or ex post outcomes. The experiment was a two stage dictator game where the distribution phase was preceded by a risk-taking phase. Our analysis provides four main findings. First, we show that even though many participants focus exclusively on ex ante opportunities, the majority favors some redistribution ex post. Second, we find that, among the participants who redistribute ex post, a substantial share make a distinction between ex post inequalities that reflect differences in luck and ex post inequalities that reflect differences in choices. Third, we show that the appeal of the ex ante view is independent of how costly it is to avoid exposure to risk. Fourth, we find that the choices of stakeholders and impartial spectators reflect the same set of fairness considerations.

Keywords: Risk-taking; fairness; luck; equal opportunities.; (follow links to similar papers)

JEL-Codes: D03; D30; D63; (follow links to similar papers)

19 pages, February 1, 2010

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