Better Lucky than Good: The Role of Information in Other-Regarding Preferences

There is anecdotal evidence that people often treat income earned by effort differently than that gained by luck, yet economists often overlook this distinction. Furthermore, others’ income sources may often be (at least partially) obfuscated. I adapt a common inequality aversion model to allow for income distinction by source, both for own income and others’, and for uncertainty over others’ sources. I empirically test resulting hypotheses in a dictator game experiment wherein subjects gain income via both effort and luck. Dictators know recipients’ income by source in control, but only total income in treatment. I find that partially informed dictators treated wealth as fully informed dictators did luck, but not as they did earnings– nor as conditional expectations of recipient sources. This is evidence of social insurance rather than moral wiggle-room, and it also refutes an expected value approach