Effects of Gain-Loss Frames on Advantageous Inequality Aversion

This paper studies individuals’ preference for reducing advantageous inequality in the distribution of gains and losses. Combining the inequality aversion model of Fehr and Schmidt (1999) with loss aversion a la Kahneman and Tversky (1979), we predict the relative dislike for advantageous inequality is lower when outcomes are framed as losses than when outcomes are framed as gains. We test this prediction using data from two modified dictator game experiments. Consistent with the model, we find that the amount of payoff that subjects are willing to sacrifice in order to increase the net payoff of others and reduce advantageous inequality is smaller under a loss frame than under a gain frame. The results also show that women are more inequality averse than men in both gains and losses.