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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 19/2015:
Equity theory and fair inequality: a neuroeconomic study.

Alexander W. Cappelen (), Tom Eichele (), Kenneth Hugdahl (), Karsten Specht (), Erik Ø. Sørensen () and Bertil Tungodden ()

Abstract: The present paper reports results from the first study designed to examine the neuronal responses to income inequality in situations in which individuals have made different contributions in terms of work effort. We conducted an experiment that included a prescanning phase in which the participants earned money by working, and a neuronal scanning phase in which we examined how the brain responded when the participants evaluated different distributions of their earnings. We provide causal evidence of the relative contribution of work effort being crucial for understanding the hemodynamic response in the brain. We found a significant hemodynamic response in the striatum to deviations from the distribution of income that was proportional to work effort, but found no effect of deviations from the equal distribution of income. We also observed a striking correlation between the hemodynamic response in the striatum and the self-reported evaluation of the income distributions. Our results provide the first set of neuronal evidence for equity theory and suggest that people distinguish between fair and unfair inequalities.

Keywords: Fairness; inequality; striatum; equity theory; (follow links to similar papers)

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

29 pages, August 24, 2015

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