LiU Working Papers in Economics,
Linköping University, Division of Economics, Department of Management and Engineering

Abstract: According to luck egalitarianism, inequalities should be deemed fair as long as they follow from individuals’ deliberate and fully informed choices, i.e. option luck – while inequalities should be deemed unfair if they follow from choices over which the individual has no control, i.e. brute luck. This study investigates if individuals’ fairness preferences correspond with the luck egalitarian fairness position. More specifically, in a laboratory experiment we test how individuals choose to redistribute gains and losses that stem from option luck compared to brute luck.

A two-stage experimental design with real incentives was employed. In total, 226 subjects were randomly assigned to either the brute luck or option luck treatment. Treatments were identical except for how monetary compensation for participation in the experiment was settled in stage one. In the option luck treatment, subjects were given the option to chose between a safe option (50 SEK) and a risky option (a 50/50 gamble between 0 SEK and 150 SEK). In the brute luck treatment no such choice was given, instead all subjects were compensated based on outcome of the risky option. In the second stage, subjects were asked to distribute additional endowments (100 SEK) in an anonymous dictator game using the strategy method, i.e. making decisions contingent on the recipient losing or wining in the gamble.

Individuals change their action associated with re-allocation depending on the underlying conception of luck. Subjects in the brute luck treatment equalized outcomes to larger extent (p=0.0069). Thus, subjects redistributed a larger amount to unlucky losers and a smaller amount to lucky winners compared to equivalent choices made in the option luck treatment.

We find strong support for people having a fairness preference not just for outcomes, but also for how those outcomes are reached. Our findings are potentially important for understanding the role citizens assign individual responsibility for life outcomes, i.e. health and wealth.

Keywords: fairness; luck egalitarianism; brute luck; option luck; dictator game; laboratory experiment

JEL-codes: D03

19 pages, February 19, 2016

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