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Monday, August 22, 2022

Meta-Analysis of Inequality Aversion Estimates

Nunnari, S., & Pozzi, M. (2022).
SSRN Electronic Journal.
https://doi.org/10.2139/ssrn.4169385

Abstract

Loss aversion is one of the most widely used concepts in behavioral economics. We conduct a large-scale interdisciplinary meta-analysis, to systematically accumulate knowledge from numerous empirical estimates of the loss aversion coefficient reported during the past couple of decades. We examine 607 empirical estimates of loss aversion from 150 articles in economics, psychology, neuroscience, and several other disciplines. Our analysis indicates that the mean loss aversion coefficient is between 1.8 and 2.1. We also document how reported estimates vary depending on the observable characteristics of the study design.

Conclusion

In this paper, we reported the results of a meta-analysis of empirical estimates of the inequality aversion coefficients in models of outcome-based other-regarding preferences `a la Fehr and Schmidt (1999). We conduct both a frequentist analysis (using a multi-level random-effects model) and a Bayesian analysis (using a Bayesian hierarchical model) to provide a “weighted average” for α and β. The results from the two approaches are nearly identical and support the hypothesis of inequality concerns. From the frequentist analysis, we learn that the mean envy coefficient is 0.425 with a 95% confidence interval of [0.244, 0.606]; the mean guilt coefficient is, instead, 0.291 with a 95% confidence interval [0.218, 0.363]. This means that, on average, an individual is willing to spend € 0.41 to increase others’ earnings by €1 when ahead, and € 0.74 to decrease others’ earnings by €1 when behind. The theoretical assumptions α ≥ β and 0 ≤ β < 1 are upheld in our empirical analysis, but we cannot conclude that the disadvantageous inequality coefficient is statistically greater than the coefficient for advantageous inequality. We also observe no correlation between the two parameters.