Friday, May 16, 2008

Inequity Aversion

In part of a fascinating Q/A article about apes and behavior, there was this question about Inequity Aversion, which I think would be an interesting item to consider in Barefoot Bum's (Larry's) ongoing series on economics. Here's the question and answer:

Q: Is yours the lab that did the grape vs. cucumber study? The monkeys got either a grape or a cucumber for doing a task …

A: Yes, together with Sarah Brosnan, we did a study in which capuchin monkeys received either a grape or a piece of cucumber for a simple task.

If both monkeys got the same reward, there never was a problem. Grapes are by far preferred (as real primates, like us, they go for sugar content), but even if both received cucumber, they’d perform the task many times in a row.

However, if they received different rewards, the one who got the short end of the stick would begin to waver in its responses, and very soon start a rebellion by either refusing to perform the task or refusing to eat the cucumber.

This is an “irrational” response in the sense that if profit-maximizing is what life (and economics) is about, one should always take what one can get. Monkeys will always accept and eat a piece of cucumber whenever we give it to them, but apparently not when their partner is getting a better deal. In humans, this reaction is known as “inequity aversion.”

I actually don’t think the response is irrational at all, but related to the fact that in a cooperative system, one needs to watch what kind of investment one makes and what one gets in return. If your partners always ends up getting a greater share, this means that you’re being taken advantage of. So, the rational thing to do is withhold cooperation until the reward division improves.

This holds an important message for American society which is becoming less fair by the day.

The Gini-index (which measures income inequality) keeps rising and is now more in line with that of third-world countries than of other industrialized nations. If monkeys already have trouble accepting income inequality, you can imagine what it does to us. It creates great tensions within a society, and we know that tensions affect psychological and physical well-being. Some attribute the dismal health statistics of Americans (now #42 in the world’s
longevity ranking) to the social frictions of an unfair society (see Richard Wilkinson, 2005: The Impact of Inequality).

This really does not surprise me - I know my sense of fairness is violated by such things. I'm sure this is why, for instance, in armies that are facing supply issues, the truly adored generals are the ones that take the same rations as the troops as opposed to living in opulence while the privates eat bark.

Equal pay for equal work isn't exactly rocket science. Which is why I was always annoyed that salaries were treated like top secret information at every corporation I worked at. The first place I worked they actually made it policy that you weren't allowed to talk with any other employees about your salary. Then they changed this to you couldn't make it an "issue." (Come to think of it, I've discussed this issue before). In this context, I still think that the only reason not to have salary transparency is to avoid problems with inequity aversion kicking in among workers. Though probably the issue is more complicated by the fact that it can be hard sometimes to measure exactly how much two individuals are worth relative to each other if you pay by something other than just straight seniority. Perhaps people will overestimate their own worth and underestimate someone else's worth.

1 comment:

The Barefoot Bum said...

In a non-free market — and all Capitalist markets are non-free; they have at best the illusion of freedom — it is only inequity aversion that acts as negative feedback on prices and keeps the society from becoming slavery-oriented. (From an economic perspective, it is more "rational" to live as a slave than die.)

However, Inequity Aversion is abstract; it is at best a subjective psychological phenomenon, not an objective phenomenon, and at worst it is socially constructed. What is socially constructed can be socially deconstructed, and social constructions can and do routinely override inherent psychological phenomena.