When Foul Play Seems Fair: Meritocratic (Un)Fairness and

(Dis)Honesty

Fabio Galeotti (University of East Anglia)Reuben Kline (Stony Brook University)

Raimondello Orsini (University of Bologna)

Lorentz Center, NorMAS Workshop 2013

Belief in a Just World and Redistribution

• Belief in a Just World (BJW) is the belief that deserving people are rewarded and undeserving people are punished. Under BJW, salient injustice causes a type of cognitive dissonance which one resolves through rationalization or action.

• BJW (partly) explains cross-national (US vs. West Europe) variation in degrees of re-distribution: those who are more likely to believe that income is a result of “luck and connections” are more likely to support redistribution (Alesina & Angeletos, 2005).

• Early adolescents begin to develop a sense of fair inequality; younger children tend to be strict egalitarians (Almas et al., 2010)

Inequality, Inequity and Dishonesty

• Inequality in many cases is often confounded by inequity (unfairness). Inequality can in principle be fair or unfair.Under BJW, unfairness might trigger a redistributive reaction.

• Our argument is that if the income distribution is considered to be unfair, citizens are more likely to view circumvention of the “rules of the game” – that is dishonesty and corruption - as justified.

Meritocratic fairness honestyMeritocratic unfairness dishonesty

Related Literature

• In Hoffman et al. (1994), subjects earn right (quiz performance) to be proposer in ultimatum game.

• Zizzo (2003) “Inequality and procedural fairness in a money burning and stealing experiment”.

• Almas et al. (2010) modified dictator game in which endowment is earned through an effort task

• Rustrom & Williams (2000), investigate preferences for redistribution after earning money in a “Tower of Hanoi task” (meant to differentiate effort and productivity)

• Konow et al. (1996, 2000, 2005 etc) origin of endowment and PGG contribution, “accountability principle

• Ruffle (1997): exogenous (coin flip) vs. endogenous (skill-testing contest) endowments in dictator and ultimatum games

Experimental Details

• Experimental sessions: – University of Bologna, Forlí Campus

(June, 2011 and February 2013): 164 subjects

– Stony Brook University, NY (April and November, 2012): 144 subjects

• Average payments: about €11.50 at Forlí and about $17 at SBU

• Computerized experiment (z-Tree)• Duration: 30-40 minutes

Experimental Design

Equity (Fairness)

EqualityEE EI

UE UI

• Three stages:– Stage 1: Real-effort task to measure

performance/effort and assign initial endowments

– Stage 2: Dishonesty stage (in pairs)– Stage 3: Real-effort task as in Stage 1

• Between-subjects manipulation of initial endowments’ allocation and pairing:

Stage 1: Real-effort task

• Real-effort task: counting the occurrences of letters “e” and “c” in each line of a text in German

• A tedious task intended to elicit a sense of “property rights” over performance

Stage 1: effort and payoff

• Subjects were instructed that:– At the end of the task, they will be

divided into two groups, high performers and low performers, based on median performance;

– their performance on the quiz will determine their initial endowment:• 3 out of 4 scenarios: Endowment (high

performer) ≥ Endowment (low performer)• 1 out of 4 scenarios: Endowment (low

performer) ≥ Endowment (high performer)

Treatment EE: Equal & Equitable

• Equal: Both high and low performers get the same payment

• Equitable: In the following stage, subjects will be paired high-high and low-low (randomly)

• Thus, the income distribution is both equal and equitable because all subjects are compensated equally and performed the same

• Control for income effects: two sub-treatments:– EE high:

• High performers receive $10 (€7) and low performers receive $10 (€7) – EE low:

• High performers receive $3 (€2) and low performers receive $3 (€2)

Treatment EI: Equal & Inequitable

• Equal: Both high and low performers get the same payment

• Inequitable: In the following stage, subjects are paired high-low (randomly)

• Thus, the income distribution, while equal, is arguably inequitable because the high performers receive compensation equivalent to the low performers, despite they know that their performance was higher

• Control for income effects: two sub-treatments:– EI high:

• high performers receive $10(€7) and low performers receive $10(€7)

– EI low:• high performers receive $3(€2) and low performers receive $3(€2)

Treatment UI: Unequal & Inequitable

• High performers receive $3 (€2) and low performers receive $10 (€7)

• Subjects are paired high-low (randomly)

• Thus, the income distribution is both unequal and inequitable

Treatment UE: Unequal & Equitable

• High performers receive $10 (€7) and low performers receive $3 (€2)

• Subjects are paired high-low (randomly)

• Thus, the income distribution, while unequal, is arguably equitable because the high performers receive greater compensation for their performance

Stage 2: Dishonesty stage

• Additional payment. Within each pair:• Participant A:

– Owner of “escrow” account of $15 (€10) • Participant B:

– Custodian of the account

Treatment Owner Custodian

EEHigh (Low) performer

High (Low) performer

EI Low performer High performer

UE Low performer High performer

UI Low performer High performer

Stage 2: Private Signals and Misrepresentation

• The custodian receives a series of 25 binary signals

• The signals are generated from a (symmetric) binomial distribution

• Each signal is either red or green, but known only privately to each custodian

• Each signal is meant to direct the custodian as to whether to transfer an amount, $0.60 (0.40€) to herself (green) or leave it for the owner of the account (red)

• It is the recording of the signal that affects payoffs, not the signal itself - therefore the custodian can potentially misrepresent the signal

• Practice rounds with forced input to learn the rules

Dishonesty task

Behavioural hypotheses

1) Procedural unfairness induces more dishonesty: UI > UE

2) Stronger effect in USA than in Italy, since American subjects should be more sensitive to meritocracy (WVS)

• Dishonesty in US: UI ≥ EI > EE ≈ UE• Dishonesty in Italy: UI > EI ≈ EE ≈ UE

Results: rate of honesty

(No difference between EE high (EI high) and EE low (EI low) we pool the data)

• In aggregate, American subjects were more honest than Italian (Mann-Whitney p = 0.026) mainly driven by EE and UE treatments

Two Types of Misrepresentation

• negative dishonesty: reporting a signal as green when it is in fact red

• positive dishonesty: reporting a signal as red when it is in fact green

• as expected, we find much more negative dishonesty than positive dishonesty

Results: negative dishonesty

• In aggregate, no difference between Italy and US

Results: positive dishonesty

• In aggregate, US > Italy (p = 0.027)

Results: custodian’s earnings

• Italy: no difference across treatments

Random Effects Logit (Italy and US)

ITALY US

b p b p

Red signal(t) 5.112**** 0 4.321**** 0

Red Signal (t-1) -0.271 0.167 -0.416** 0.016

Red Signal (t-1)+(t-2) -0.009 0.971 0.142 0.481

Red Signal×UI -1.575*** 0.009 -1.082** 0.016

Red Signal×UE -0.415 0.547 1.417** 0.027

Red Signal×EI -0.615 0.239 -1.188*** 0.004

UI 0.291 0.715 -0.846 0.215

UE -0.398 0.635 -1.287* 0.061

EI 0.164 0.8 -0.741 0.213

Effort -0.106 0.743 -0.207 0.428

Period -0.006 0.635 -0.009 0.396

Constant -3.059** 0.011 -0.753 0.471

Obs 1656 1886

• Dependent variable: public signal (1 = red, 0 = green)

To sum up

• We observe statistically significant differences between the Italian and the American sample

• In the US, dishonesty is triggered mainly by perceived inequity/unfairness

• In Italy dishonesty is higher on average, but is almost unrelated to equity/fairness

Meritocracy and honesty: Survey Evidence

• Data used from the World Values Survey across three waves

• Dependent variable(s): on a scale of 1-10, how justifiable is:– cheating on one’s taxes if you have the chance – accepting a bribe in the course of your duties

• Chief explanatory variable is, on scale of 1-10:– 1: “In the long run, hard work usually brings a

better life.”– 10: “Hard work does not generally bring

success – it is more a matter of luck and connections.”

Multi-level model: results

• Greater degrees of (perceived) inequity and inequality (at the national level) are associated with a greater willingness to circumvent micro-level rules (accept bribes, cheat on taxes), even when controlling for income and corruption at the national level

• This observational study shows that these factors are associated with one another

• Our experimental results show that in the lab (and especially in the US) the inequity of the income distribution is associated with a greater degree of dishonesty, even when holding constant the inequality of the distribution.

Random Effects Logit (All)

• Dependent variable: public signal (1 = red, 0 = green) b p

Red signal(t) 4.330**** 0

Red Signal (t-1) -0.339*** 0.009

Red Signal (t-1)+(t-2) 0.068 0.657

Red Signal×UI -1.223**** 0.001

Red Signal×UE 0.66 0.149

Red Signal×EI -0.932*** 0.004

Red Signal×Italy 0.723*** 0.007

Italy -1.361**** 0

UI -0.353 0.489

UE -0.99* 0.061

EI -0.251 0.56

Effort -0.117 0.559

Period -0.007 0.364

Constant -1.354 0.086

Obs 3542

Thanks for your attention