Social Preferences under Uncertainty∗ Equality of Opportunity vs. Equality of Outcome

This paper introduces a model of inequality aversion that captures a preference for equality of ex-ante expected payoff relative to a preference for equality of ex-post payoff by a single parameter. On deterministic allocations, the model reduces to the model of Fehr and Schmidt (1999). The model provides a unified explanation for recent experiments on probabilistic dictator games and dictator games under veil of ignorance. Moreover, the model can describe experiments on a preference for efficiency, which seem inconsistent with inequality aversion. We also apply the model to the optimal tournament. Finally, we provide a behavioral foundation of the model. ∗This paper was originally circulated as K. Saito (January 25, 2008) “Social Preference under Uncertainty,” the University of Tokyo, COE Discussion Papers, No. F-217 (http://www2.e.u-tokyo.ac.jp/cemano/ research/DP/dp.html). The original paper on inequality aversion was first presented on January 16, 2007 at a micro-workshop seminar at the University of Tokyo. †E-mail: [email protected]. I am indebted to my adviser, Eddie Dekel, for continuous guidance, support, and encouragement. I am grateful to Colin Camerer, Federico Echenique, Jeff Ely, Ernst Fehr, Faruk Gul, Pietro Ortoleva, Marciano Siniscalchi, and Leeat Yariv for discussions that have led to improvement of the paper. I would like to thank my former adviser, Michihiro Kandori, for his guidance when I was at the University of Tokyo. I would also like to thank Elchanan Ben-Porath, Kenneth Binmore, Soo Hong Chew, Thibault Gajdos, Itzhak Gilboa, Edi Karni, Fabio Maccheroni, Massimo Marinacci, Philippe Mongin, John E. Roemer, Jacob S. Sagi, Uzi Segal, and seminar participants at the University of Tokyo, Northwestern University, California Institute of Technology, and Risk, Uncertainty, and Decision (RUD, 2010) in Paris. I gratefully acknowledge financial support from the Center for Economic Theory at the Economics Department of Northwestern University.